In his new book, The Innovator’s Hypothesis: How Cheap Experiments Are Worth More Than Good Ideas, business innovation expert Michael Schrage turns a common innovation strategy on its head. Instead of letting ideas drive innovation, Schrage suggests that companies should embrace creativity within constraints – clear deadlines with clear deliverables.

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The Innovator’s Hypothesis
WHY CHEAP EXPERIMENTS ARE WORTH MORE THAN ‘GOOD IDEAS’

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The Content of the Audience
is more important than
The Content of the Talk

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I explore…
‘Behavioral Economics’ of Enterprise
Experimentation, Innovation & Network Effects
Via their Models, Prototypes & Simulations

4. How Much Does It Weigh? 162
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5. How Much Does The Paint Cost?
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6. ‘Unit of Analysis’
‘Don’t Pick The Wrong One(s)’
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7. My Advisory/Consulting Work
i help organizations design fast, frugal and
high-impact business experiments that make innovation
simpler, safer and scalable…
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What is this quick webinar really about?
‘Investing’ in Innovation

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Innovation:
The Conversion of ‘Novelty’ into ‘Value’

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Crucial Strategic Observation
Innovation is a Means to an End

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‘Experiments’ as Means, Medium & Mechanism
For New Value Discovery & Creation
-What Kind of ‘Investment’ Is It?
More Explicitly…..

13. Experiment in Science is a Search for ‘Truth’
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14. Experiment in Business is a Search for….
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15. The Challenge
Organizationally, Operationally and Culturally,
Is Your Enterprise ‘Appropriately’ Investing In
Experiments & Experimentation?
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Call To Action/Takeaway
Simply, Quickly and Frugally Explores
‘Experimenting with Experimenting’
-- What Kinds of ‘Innovation Conversations’ Do You Want to Create?
--What ‘Innovation Experimentation’ Should You Encourage?

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Our Structure
• Experiments as ‘Investments’
• Experimentation as a ‘Discipline’
• Experimentation as a ‘Future’

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A Goal: To Transform How You Perceive
Innovation Risk Management

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Value Investing: Buying a $ for 50 cents

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Value Innovating: Innovation for 50 cents on the $

21. The ‘Fundamental’ Challenge
(How) Can We Make a $5,000 Experiment Worth
$100,000 In Fewer Than 100 Days?
- (How) Can a Portfolio of $5K Experiments Unlock $10 Million of Value in a Year?
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22. ‘Adding Up’ the Exponential Impact
X = ?
Moore’s Law Metcalfe’s Law
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23. Exponential Economics
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24. ‘Price’ Is What You Pay;
‘Value’ Is What You Get
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Innovation Economics
The “80/20/20 Vision”

26. What Business Hypotheses Might We Test – What Experiments Can We Run – That Might Give us
• 80% of the “Essential” Information/Insight in
• 20% of the Time; with but
•20% of the Resources
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27. Experiments (Can) Help Manager Risk
Risk Comes From Not Knowing
What You’re Doing
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28. Experiments as Media to….
‘Derisk’Innovation
--not ‘Optimization’ but ‘Loss Aversion’
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29. A New Metric?
RAROE
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Innovation Myths:
Good Ideas

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Why Does This Upset People So?
‘Good Ideas’ are Bad;
‘Testable Hypotheses’ are Good!

32. Jeff Bezos
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33. Amazon Recommendation Engine
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Amazon Recommendation Engine [Greg Linden]
I I I I hacked up a prototype. On a test site, I modified the Amazon.com
shopping cart page to recommend other items you might enjoy
adding to your cart. Looked pretty good to me. I started showing it
around…
At this point, I was told I was forbidden to work on this any further. I was
told Amazon was not ready to launch this feature. It should have
stopped there. Instead, I prepared the feature for an online test. I
believed in shopping cart recommendations. I wanted to measure
the sales impact….

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Remember Them….?

36. Shameful Schadenfreude
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What’s the nature of the
Resistance

38. ‘We can’t do that because…’
‘Resistance’
is by far the clearest window into understanding
Your Organization’s Innovation Culture
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The Greatest Innovation Frustrations Now Are Organizational & Cultural NOT Technical or Financial

40. ideology:
Do you experiment to extend your values
or to challenge them?
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41. What Culture Has For Lunch…..
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So what ‘Innovation’ Business are We now in?
The
Experiments
Business

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You will be the
CEO

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You don’t have to be the CEO to be the
Chief
Experiments
Officer

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The CEO’s Deliverable:
A Portfolio of
Testable Business Hypotheses
that Matter!

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What is a ‘Portfolio’?
A Bundle of Experiments Bound Together
By A Value-Driven Theme

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Business Hypothesis
A Statement About the Real or Potential Value
of the Business Framed as a Causal Relationship
If We Do ‘X’…Then The [Likely] Result is ‘Y’

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Experiment
A Structured, Easily Replicable Process
to ‘Test a Hypothesis’

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The Experimental Outcomes
‘Insight’
not
“Solutions”

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The X-Teams/ Innovator’s Hypothesis
5X5 X-Teams

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X=themes
• Great Vision
• Great Problems
• Great Arguments

52. ‘Own The Experimental Intersection’
‘Great Vision’ ‘Great Problems’
‘Great Arguments’
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53. With apologies to Cuba Gooding Jr. & everyone else…
‘Show Me The Hypothesis….!’
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54. Consider Taking Rutherford Seriously….
‘If your experiments need statistics, you
you ought to have done a better experiment‘
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55. Consider Taking Rutherford Seriously….
‘An Experiment is not complete until it has been
expressed in simple and correct English.’
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“…don’t do equations with Greek letters in them.”

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What Would It Mean For You To Be…
“Warren Buffetts”
of Experimentation

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Key Takeaways/Heuristics
• Analyze Less; Experiment More
• Privilege ‘Testable Hypotheses’ Over ‘Good Ideas’
• Celebrate ‘Creative Constraints’
• Make ‘Experiment’ Social
• Do The Experiments That Matter Most
• Insights First, ‘Solutions’ Later
• Track The ‘Hypothesis Trajectory’

59. People Aren’t Lab Rats
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60. Microsoft’s Ronny Kohavi
“We are poor at assessing the value of ideas.”
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We’re not ‘smarter’ or ‘better’ but...
The reason why we are on a higher imaginative level is not because we have finer
imaginations, but because we have better instruments.
In science, the most important thing that has happened over the last forty years is the
advance in instrumental design.…A fresh instrument serves the same purpose as foreign
travel, it shows things in unusual combinations…
The gain is more than a mere addition; it is a transformation.
A.N. Whitehead
An Enquiry Concerning the Principles of Natural Knowledge
Cambridge University Press 1925

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in case of contact...
schrage@mit.edu

63. Compliance/Adherence
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