The tension of creating vs maximizing

Posted on | January 30, 2010 | Comments

I’m about half-way through “The Design of Business” by Roger Martin which explores how knowledge advances from one stage to another-from mystery (something we can’t explain) to heuristic (a rule of thumb that guides us toward solution) to algorithm (a predictable formula for producing an answer) to code (when the formula becomes so predictable it can be fully automated). As knowledge advances across the stages, productivity grows and costs drop-creating massive value for companies. p18-19

He talks about two of the models companies operate under, exploitation and exploration. To paraphrase companies that operate under the exploitation philosophy will analyze a set of resources and their strategy will be to squeeze every drop of revenue and subsequent profit out of those resources, think of these companies as super efficient. Companies that adhere to the strategy of exploration will purposefully step of the path of their current success to analyze the market, the customer and seek to discover new products. Exploitation is a strategy that reaps tremendous benefit – and then seemingly overnight the cash cow runs dry. Exploration bears almost no fruit in the short-term and can command equal resources without benefit – then seemingly overnight it turns into a rock star.

(Needless to say, because of the fiduciary responsibility most public companies adhere to exploitation vs exploration.)

While reading that, I came across this article on Slate.com profiling Jeff Bezos, Founder/CEO of Amazon and the Kindle. Below is what he had to say about Amazon (and the creation of the Kindle).

“There are two ways that companies can extend what they’re doing. One is they can take an inventory of their skills and competencies, and then they can say, “OK, with this set of skills and competencies, what else can we do?” And that’s a very useful technique that all companies should use. But there’s a second method, which takes a longer-term orientation. It is to say, rather than ask what are we good at and what else can we do with that skill, you ask, who are our customers? What do they need? And then you say we’re going to give that to them regardless of whether we currently have the skills to do so, and we will learn those skills no matter how long it takes. Kindle is a great example of that. It’s been on the market for two years, but we worked on it for three years in earnest before that. We talked about it for a year before that. We had to go hire people to build a hardware- engineering team to build the device. We had to acquire new skills. There’s a tendency, I think, for executives to think that the right course of action is to stick to the knitting—stick with what you’re good at. That may be a generally good rule, but the problem is the world changes out from under you if you’re not constantly adding to your skill set.”

I love the convergence of learning, and here is Jeff Bezos talking about their strategy “rather than ask what are we good at and what else can we do with that skill, you ask, who are our customers? What do they need?” which is a near perfect example of an exploratory strategy.

I love it.