Venture capital firms invest money in companies they believe have potential for success, and in return get a share in the future profits. Consulting firms invest their time and energy in making companies successful, and in return get a fixed payment. It occurred to me over the summer while working at a VC firm that consulting firms have missed an opportunity. If consulting firms were to invest their time and energy in return for a share in the future profits of client companies, they would benefit from significantly more profit potential. Furthermore, using the VC model, revenues from a diversified portfolio of companies that the consulting firm has “invested” in would minimize the impact of the natural ebbs and flows of consulting work and revenues. (Consulting firms depend on a consistent supply of work to maintain their operations.) From the client’s point of view, they can count on the best services because the consultant is fully invested. Hours worked or length of project are less relevant because the consultant is motivated to continue to do what is necessary for the company to succeed. If the consulting is unsuccessful and profits don’t go up, it doesn’t cost the company anything. This relationship would be particularly attractive for start-ups who don’t have the cash to pay consulting fees, but the potential for future profits. I was happy to see that this model is being successfully employed by Fuseproject. The founder of Fuseproject, Yves Behar, is quoted, “We look for companies and situations where we can create a lot of value.” I believe this points to the greatest benefit from the blended VC/consulting model: It most efficiently matches clients with the consultants that expect to make the biggest impact.
Taking in some art at Boston’s MFA the other day, the description for this Franz Kline painting caught my eye. In response to comparisons to calligraphy, Kline decidedly differentiates his work, “Calligraphy is writing, and I’m not writing. I paint the white as well as the black, and the white is just as important.” Often times white spaces are less intentional. The white space is simply whatever doesn’t get colored in. This sort of active decision-making around the white spaces reminds me of a lesson from one of the most famous business management theorists, Michael Porter. “The essence of strategy is choosing what not to do.” This sort of intentionality around what I don’t do is something I’m trying to work on in my own life. There are endless people and opportunities to fill our time, it’s important to decide which avenues we will not go down so we have more time to focus on the ones we prioritize. What are the painted white spaces in your life?
The inadequate response to the sudden outbreaks of looting and rioting last week in Britain made me think law enforcement is in desperate need of innovation. Much has been said of technology’s role in accelerating civil disorder. Troublemakers embraced innovation, with rioters spreading messages like wildfire with social media. As many have pointed out, this technology can be used for noble purposes as well as nefarious, but the fact remains that advances in technology increase potential for volatility. This potential volatility requires a more flexible and agile law enforcement, to match changing needs.
How can law enforcement agencies be more flexible and agile? Looking at private companies for inspiration, the use of contractors has helped companies meet higher demand while not overcommitting for the long term. Interestingly, auxiliary police forces, often volunteer, are common in many parts of the world. Police departments may want to increase training and certification of citizens to be called up in emergency situations. Another business technique to increase flexibility is cross-training, so employees can be shifted where they’re needed most. What if government employees were cross-trained to fill in when enforcement needs outweigh other needs? (Administrators get the added bonus of regular fitness training!)
Considering how new technologies can be used to support, rather than thwart, law enforcement naturally leads to thoughts of crowd-sourcing. Come to think of it, crowd-sourcing has a long-standing precedent in our justice system, in the citizen’s arrest. But who knows the legalities surrounding such an act? I think we would be well-served to embed greater consciousness around law enforcement through more public education. This could be a very useful unit in civics class, with potential to pursue certification as law enforcement reserves. The public could also support enforcement through easier access via social networks. Being able to quickly and easily report tips on unrest is likely to increase civic involvement in support of law enforcement, just as being able to quickly and easily spread tips on vulnerabilities increased rioting. (An accountability mechanism, such as making tips associated with Facebook profiles, is needed to disincentivize false tips!) A quick google search shows that there are already a number of apps out there, such as the PatriotApp, iWatch Dallas, and Eyes and Ears of Kentucky, that allow citizens to report crime tips. And a lot of controversy. It is interesting that the same technology advocating crowd that supported London rioters use of social media as free speech does not seem to support these tools in the hands of law enforcement!
I’ve run across a couple fascinating examples of crowd-sourced law enforcement recently, which precede the ubiquity of social media. The exceptionally creative mayor of Bogotá, Antanas Mockus, in 1995 distributed thumb cards to citizens so they could express their approval or disapproval of other drivers actions. His belief that citizens cared more about being shamed than paying fines seems to have had some truth in it, as traffic fatalities dropped by over 50% under his leadership. I also recently heard a story of someone who hit a man on a bicycle in Taiwan, where apparently it is customary for all the bystanders in the area to gather round and discuss how such matters should be resolved. When the authorities arrive, they will generally defer to the opinion of the makeshift jury.
Education and engagement of the populace in law enforcement seems like the foundational step to a more flexible law enforcement response. Creative means for citizens to engage may encourage more civic participation. (Might an app with approving or disapproving sound effects be an updated version of the thumb cards?) Being just a “friend” away on Facebook could make it easier for citizens to support local police. I hope social media technologies can prove to be just as useful in responding to crime, as in escalating it.
On Thursday, I attended the Boston Microfinance Club’s event on technology and microfinance. This event had a tone of humility, similar to the “Beyond the Hype” microfinance event. While some progress has been made, there is still a long road ahead in using technology to its potential for microfinance.
I was particularly struck by two compelling stories of innovation from the panelists with one major difference. The first, M-Pesa, succeeded due to an environment lacking competition. The second, Ruma, succeeded thanks to an environment of intense competition.
Innovation in a Monopolistic Environment
Roy Jacobowitz of Accion discussed M-Pesa, the mobile money transfer service in Kenya. The number of users (over 13.5 million) make this by far the greatest success case of financial services reaching the unbanked through technology. Unfortunately, according to Roy, the success of this model is not very replicable. M-Pesa took off because the initial network provider, Safaricom, had a monopoly on the wireless industry in Kenya. Adoption was seamless because the service was essentially universal. There was no question whether someone else in Kenya would also have access to this service. Anyone with a phone in Kenya could use it to transfer money with a fellow phone-carrying citizen. M-Pesa also benefitted from supportive regulators, which cannot be counted on elsewhere. Players who’ve wanted to follow this success in other countries have discovered that Kenya had all the stars aligned to make M-Pesa a runaway hit––an unlikely occurrence elsewhere. Most markets are more competitive and have less cooperative regulators. This provides higher hurdles for success, since a service would have to work across carriers and please fickle regulators.
Innovation in a Competitive Environment
Following Jacobowitz’s sobering assessment of M-Pesa, Aldi Haryopratomo took the stage and presented his company Ruma. Ruma provides a “business-in-a-box” to potential entrepreneurs in Indonesia. The box consists of a mobile phone, marketing materials, and training to start selling pre-paid phone minutes in rural areas that don’t currently have distribution. Ruma is the middle man, acquiring minutes in bulk from the nation’s 11 different carriers and reselling to the entrepreneurs at a slight markup. The entrepreneurs can add an additional markup and still provide a competitive price to customers who used to have to travel into the city to buy their minutes. Aldi’s model seems to be catching steam. They’ve already established a network of 6,000 entrepreneurs in Indonesia, and recently won the Harvard Social Enterprise and Global Social Venture competitions. In clear contrast to the assessment of M-Pesa, Aldi repeatedly mentioned that it was the high level of wireless competition in Indonesia that makes Ruma possible.
Seeing these juxtaposed examples speaks well for the potential of innovation in all competitive environments. Monopoly-driven innovations can be powerful, if firms are progressive (and, I would add, benevolent). On the other hand, highly competitive environments provide lots of opportunities for 3rd parties to step in and create additional value.
I’ve been following microfinance for some time, as I’m fascinated by the great potential for improving lives by simply extending the innovation of financing to millions more. If you don’t know how microfinance works, see this explanatory video we created at Continuum while working with the Grameen Foundation and the Center for Creative Leadership. I’ve had the amazing opportunity to work both with one of the largest banks in the world serving the top of the pyramid, and also with microfinance institutions working at a grassroots level to serve the bottom of the pyramid. I was surprised by how similar both systems were, given their very different goals. I also thought there was a lot each could learn from the other, but that’s a story for another time. Part of my fascination with microfinance is that it is a relatively new phenomenon, and thus rapidly evolving. Will it follow the same trajectory as the more developed finance industry? Will the same mistakes be made, or can they be avoided? The movement has gotten more attention, as it has proven profitable for some. A controversial and lucrative IPO has lead many to believe microfinance is in crisis. What is the future state of microfinance? I attended a panel event being held by Boston International and the Boston Microfinance Club to check in on the current state of the microfinance conversation. Below are the key themes I came away with related to the evolution of microfinance.
In case you haven’t noticed the change in dialogue, it was very clear from this panel that the microfinance conversation has sobered up. The majority of the panelists acknowledged that there is no solid evidence that microfinance actually reduces poverty (the jury is still out, but there are no valid tests so far proving so). These advocates have dropped the poverty alleviation rhetoric for a more nuanced promotion of microfinance as simply providing access to financial services for the poor (which can improve quality of life by helping with cash flow and managing risk.)
Balancing Lending with Saving
Microcredit alone is not healthy microfinance. Microfinance institutions should not just be encouraging lending, but saving as well. “Do not invest in a microfinance institution that just lends,” was the advice given by Guy Stuart, a lecturer at the Harvard Kennedy School. This “funnel model” creates incentives to “just get money out the door”. Bank Rakyat, the largest microfinance organization in the world, has 4 million borrowers and 30 million savers. Grameen Bank also apparently has more in savings than loans. (Incidentally, this is one of the things that surprised me at many of the microfinance organizations we visited: Loan officers’ goals are based on quantity of loans made. This struck me as silly, being that there was insatiable demand for loans, and this measure was unrelated to the ultimate goal of the microfinance organizations, which was to improve lives.)
Kevin Saunders, associate general counsel for Acción, had an interesting perspective on the recent crisis in Andrha Pradesh. Government halted MFI operations as a reaction to highly publicized suicides, devastating the market. Kevin said that the suicides of 2010 were no higher than other years, but were possibly given more media attention because state-run banks wanted more regulations put on MFIs. (Others support this theory, including this HBR blogger.) And the upshot was exactly that: more regulations. This past May, Andrha Pradesh put a cap on the interest rate MFIs could charge, among other regulations. The result of the government’s involvement has made Andrha Pradesh an undesirable place to lend, drastically reducing capital and effectively hurting the citizens they were trying to help. So what is the future of microfinance? It depends on what choices governments make in responding to crises, according to Kevin.
While researching microfinance in India, I was surprised to learn that banks are not necessarily uninterested in serving the underserved, but they are effectively barred from doing microfinance because regulations don’t allow them to charge an interest rate that would cover the high costs of doing business in underserved markets. Microfinance organizations get around this regulation because they are technically not a bank, and charge interest rates that would seem usurious in other settings. Microfinance organizations are not necessarily more efficient at serving this market, and they are not necessarily more benevolent. They have been able to serve this market because they have avoided the tough regulations on banks. As microfinance has proven profitable, many banks would surely like to get in on the action. What would happen if regulations on banks were loosened and they were allowed to participate in the microfinance movement? With access to more resources, would this greatly expand the reach of microfinance? Would the discipline of banking improve the efficiency of the resources used? Would individuals be taken advantage of by profit-driven banks? Or would some access to financing be better than no access for many individuals? It seems that more resources and more competition aimed at this segment of the pyramid would bring more benefit than harm to this group of underserved, and I think India is going in the wrong direction by beginning to regulate MFI’s interest rates. Instead they should be loosening the interest rate regulations on the banking industry and letting more players participate in the microfinance space.
Bruce Nussbaum, one of the most vocal advocates for the design thinking movement in the business world, has now called Design Thinking a failed experiment. As someone who’s worked in the design thinking industry, I came into it with my own expectations, and then learned how it is practiced. You can see my understanding of how state-of-the-art design thinking is practiced here. After four years of practicing design thinking, I’ve concluded that Design Thinking as generally practiced has a rather narrow application. Design thinking consultancies help businesses do one thing really well: come up with a new product or service idea. Yes, some consultancies have been expanding the use of Design Thinking, and I feel like I’ve been a part of pushing that boundary at Continuum over the past few years. By far, though, the most common Design Thinking project is a version of wash, rinse, repeat. (Or rather: interview, extract insights, brainstorm new ideas.)
Like many others, I was quickly attracted to the idea of “Design Thinking”. The appeal is clear. It’s lofty enough, with an almost limitless scope of application. It’s vague enough to be defined however you imagine it to be. It has resulted in some pretty nifty products. No wonder it’s gotten a lot of attention over the past decade. (I’m sure the shifting of much design work overseas has motivated designers to fuel this movement as well.)
How I Saw It
With plenty of inspirational success stories, but no clear definition of design thinking, I had rationalized in my own head why the designer’s thought process was valuable far outside the scope of the traditional graphic design project. In my mind, a brilliant designer was one who could reduce complexity to its essence. One who made sense of what really mattered and cut away all the inconsequential noise, capturing complicated ideas in their simplest form. Wasn’t logo design–the distilling of an entire corporation down to a simple mark that might be printed in a quarter inch of space–the ultimate challenge in reduction? I also believe great editorial design helps people get to the crux of an issue, by creating a hierarchy that highlights what really matters. These skills seem invaluable to business innovation. Simplifying, or abstraction, is what helps us make connections between disparate worlds. These unexpected connections are certainly a great source for innovation. And being able to simplify a business to its essential building blocks seems the best way to start re-imagining what exists, from the most fundamental level. Furthermore, graphic designers have the skills to capture these simplified representations of complex ideas in ways that make it easier for others to participate in their creative evolution.
Was Not How Others Saw It
After getting my first job in design thinking I came to realize that the general philosophy and practice of design thinking had a different rationale. I found design thinkers to mostly come from an industrial design background. Design thinking, it turned out, was based on applying the first step of the product design process–obtaining a thorough understanding of end users–to help companies figure out what they should do next. In practice, this generally consists of a series of interviews with customers regarding broad values, hopes, and aspirations, out of which are drawn some key insights. This helps develop customer-centric offerings, resulting in products and services that resonate with customers.
I wholeheartedly agree that the number one priority for a company should be providing value to customers. Without a strong customer value proposition, there’s no point in bothering with anything else. However, when looking for growth, I think there are other sources of innovation where design thinking of the other type might come into play.
Let’s Broaden Our Perspectives
My favorite model for a business model comes from Mark Johnson’s book, Seizing the Whitespace. It has essentially 3 components: the customer value proposition, the key resources and processes that a company uses to create value, and the profit model. Considering this framework, I would say that design thinking has been well applied to finding sources of innovation in the customer value proposition category. The other corners of the model offer opportunities for innovation as well, and Design Thinking as I originally envisioned it may be more applicable here.
Take the key resources and processes, for example. Businesses tend to start small and simple, but over time they grow and take on a life of their own. Tasks are specialized, divisions are created, and pretty soon all these divisions begin to evolve in their own ways. Pretty soon nobody in the company has a complete picture of what the company is doing. I did a project in a B2B sales organization which had gotten so unwieldy no one person was able to explain the full scope of the sales process. After talking to a number of people all over the organization, I was able to piece together the pieces of the puzzle and create a comprehensive diagram, which showed where the strongest points of influence were. Understanding the full picture with some level of detail makes it possible to envision new and improved ways for the system to work. Also, understanding the levers of influence helps focus innovation efforts. For example, we discovered that a problem with the supply chain was negatively affecting one point of influence. A-ha! Innovations needed in the supply chain. Not what our client was originally thinking, but I think it was my designers ability to put together the pieces and visualize the organization in a new way that led to insights like this one.
Design Thinking can be useful in finding innovations in the profit model as well. Conceptual abstraction, like William Golden creating one of the longest enduring logos by recognizing CBS as simply the “eye on the world”, helps in making connections between otherwise disparate companies. Recognizing that your company is essentially trying to make something more accessible will help you find inspiration from companies in other industries, such as Zipcar, or MinuteClinic. This can lead to a wealth of ideas for profit model modifications.
I’m not saying that these skills for finding business innovations lie only with designers. I think a blend of business thinking and design thinking is ideal, and particularly like what Dev Patnaik has to say about Hybrid Thinking. I think it would certainly behoove designers to consider other applications of their thinking to business problems, beyond the well-trod path of consumer insights. Businesses would benefit as well.
I am an innovation strategist. I bring a multidisciplinary background to help companies find the right strategies for growth.
How did I come to this specialty? Originally from Minnesota, I headed to New York City to launch my design career in the mecca for this field. I was privileged to work with some of the world’s greatest and most famous designers, including Milton Glaser who designed the I <3 NY logo that peppers the city. I worked on exciting and high profile campaigns like New York’s bid for the 2012 Olympics (and had my designs plastered all over the Rockefeller Center, among other grand places). And then I had a pivotal experience: a difficult and emotional boss that made me question my self-worth every day. As a result, I questioned everything, and realized I wasn’t that interested in my current career. I wanted to be doing something with more impact. Making decisions at a higher level. I thank this boss for throwing things into stark relief.
In this time of questioning, I discovered a section in BusinessWeek that gave me my answer. In the Innovation section, there was article after article about companies valuing designers not for their tangible output, but for something they called “design thinking”. Designers were helping businesses solve some of their most challenging problems. I kept reading about the “T-shaped thinkers” who were both creative and analytical, and pushing companies to think in new ways. Fascinated, and confident that I fit the bill, I pursued the 3 companies whose names popped up more than the others.
I was thrilled to land a job at Continuum, a global innovation consultancy in Boston. I believe this was partially responsible to a social entrepreneurial experience I had pursued while living in New York City. At the time I wasn’t sure why it made sense, but it just felt like the right thing to do. It came about thanks to a chance meeting in a New York restaurant. I met Mary Graham, a Fulbright fellow, who shared stories of the amazing impact of solar energy on women’s lives in Mali, Africa. Having just tore through The Fortune at the Bottom of the Pyramid, by C.K. Prahalad, I was convinced that bringing market dynamics to the situation could help spread the use of solar technology. A month later I flew out to Mali, and helped Mary develop a hybrid non-profit and enterprise model to jump-start the solar energy market. Together we raised the seed money to start Afriq-Power, a local enterprise that would provide supply of solar panels. We also started and raised money for the non-profit Practical Small Projects to do do humanitarian projects in villages and generate demand. Again, I had no rationalization for why I got involved with this project, but I poured a lot of my heart and soul into it. At times I tried to think of how I could somehow tie it to design as I knew it, so the effort would make more sense to my career, but I was too busy making sure Practical Small Projects and Afriq-Power would succeed. Who knew that I was flexing my “design thinking” muscles, which would later be attractive to a company like Continuum?
At Continuum in Boston I would be working for some of the largest companies in the world, helping them address their most challenging problems. Spending time with customers and business people all around the world. Finding new growth opportunities. Envisioning new offerings. Delivering value for customers and helping businesses succeed. This was my dream job.
What is my big takeaway? Passionately pursue those things you find interesting. Follow your heart and you will always find yourself doing something you love.