Dr. Jeff DeGraff & Staney DeGraff “The Innovation Code: The Creative Power […]” | Talks at Google

[MUSIC PLAYING] SCOTT BERGMAN: Thank you
guys for coming out today. My name is Scott Bergman. I’m part of the Talks at Google
program here in Ann Arbor. And I have the distinct
privilege of welcoming Drs. Jeff and Staney DeGraff. To tell you guys a
little bit about them, I’ll give you a
little background. At 25, Dr. Jeff DeGraff
became the Senior Executive at Domino’s, which became
one of the fastest-growing companies in America. And not only that,
he became a professor at the Ross School of
Business here in Ann Arbor and has become a C-Suite
advisor to over half of the Fortune 500. Not only that, Jeff’s
ideas and innovation have been covered
by the NPR and PBS, where he has been a featured
columnist for “Inc.,” “Wired,” “Fortune,” and “Psychology
Today,” just to name a few. And we have Staney
DeGraff here today, who is the CEO of Innovatrium,
a consulting and training practice here. And they also have offices
in Atlanta and in Ann Arbor. And she’s also an innovation
community builder, where she runs innovation
tournaments here in Detroit, and is also the creator of the
Collaborative Open Innovation Network used by the
University of Michigan. All right, guys. Well, come on up. We’re happy to have you. JEFF DEGRAFF: Thank you. SCOTT BERGMAN: Thank you
guys for joining us today. JEFF DEGRAFF: Thanks, Google. Thanks for having us. Thanks, Scott. SCOTT BERGMAN: Pleasure. JEFF DEGRAFF: So what
I want to do today is I want to challenge
a lot of probably your most sacred notions
about innovation. I’m going to tell you a
little bit about my work and what we know about how
innovation actually produces value and destroys value. To do that, it’s going to be
like an old Western movie, where we’re going to
start with the long shot of the City of Dodge. And then we’re going to move
into the tumbleweed street. Then finally, we’re going to
look at the sheriff, right? We’re going to talk about you. So I want to start with
a little back story here. Both Staney and I
are technologists. We’re trained as technologists. That’s what our
advanced degrees are in. But interestingly
enough, whenever I’m anywhere in an airport,
and I travel a lot, somebody always wants
to stop and tell me about new technology. Hey, have you heard
about the latest thing? And I’m sure you guys
get this all the time. And it’s– some of it’s
apocryphal, that we’re being– our technology’s
coming from aliens. And some of it’s stuff
that you’ve already seen and you already know. But you all know that
technology happens. And the cycle of technology,
the magnitude and momentum of technology, always
increases over time. And there’s a bunch
of laws about this. I won’t bore you with that. But around the late ’80s,
I got a call from an editor at “Life” magazine. And she wanted to talk
to me about innovation. So I thought she
wanted to talk to me. And she said, no, I want
you to give a commentary. We’re writing a piece on the
100 most important people of the 20th century. And one of them
is related to you. Now, this was a huge surprise. I don’t know any– most
people related to me– not doing so well, right? So there– she
talked about this man named Charles Fair de Graff. And she sort of– I was embarrassed. I didn’t know who
this person was. Nobody told me about him. So when she got off the
phone, I looked him up. And he was the guy who
created Pocket Books. He create paperback
books in the 1930s. And his whole idea
with this technology was that people would
become literate. If books were cheap, 2 bits,
people would become literate, but they didn’t. And the reason it
stuck with me– I was doing a project with
Alan Kay and Steve Jobs in the state of California
to try and develop literacy for people
who were under-served. And we had the
exact same result. We didn’t get any results
from introducing technology into the situation. And so very early on, that
began to galvanize my thoughts about culture and the role of
culture and technology and how, in some ways, culture overtakes
or co-opts technology. So what I want to
talk about today is that innovation isn’t
really an invention. It’s not just a gadget. It’s not next– the cool thing. It actually has a lot to do
with identifying patterns, how those patterns go
together, identifying how culture and competency
interact with those patterns. And I want to give
some examples of that. But I want to start with this
whole notion of dominant logic. And it’s a really
big thing for Google. And you’re getting a lot of
sort of press, negative press, about this. And that is one of the things
that goes on in our world– we sometimes call this in
business microsegmentation. The notion is we have
a tendency to identify and value people who
are like us, right? That’s kind of one of
the big challenges. And when social media
started, I started writing articles that got a
lot of negative attention, saying that I wasn’t sure
that social media was really creating this kind of inclusive
society, that, in some ways, it was microsegmenting us. The people who are
your friends, even though they may look different
and they may seem different, they actually believe all the
same nonsense you believe. And if they don’t believe
it, what do you do? On a dark night, on a dark
road, you unfriend them. The Spanish Inquisition
couldn’t have thought of this. So the notion is we get
these very vertical segments. So if you’ve ever talked
to anybody about religion or politics, you know what
I mean by the whole notion of dominant logic. And it comes back to what
that crazy philosopher, Schopenhauer, said
over a century ago. “Every man,” every
person, “takes the limits of his own field of vision
for the limits of the world.” And that’s kind
of where we’re at. Now, I’m going to make
the argument that this is the problem of
modernity, and there’s a way to solve this,
to get over this. So the key is how do we get
beyond this dominant logic? How do we develop a mindset
to actually be more inclusive? And I’m going to talk about
inclusiveness in a way that’s very different than you’ve
probably heard it because it’s not just politically correct. It’s not just morally correct. It’s essential for innovation. I’m going to prove it to you. Now, it turns out that
every organization has to do two things. And boy, Google, this is
really relevant to you. The first thing an organization
has to do is maintain itself. It has to produce
predictable outcomes. This is why capitalism
requires capitalists. Whether you’re a private equity,
whether you’re publicly traded, somebody has to show
that you’re going to do things on a normal basis. And the way that that happens
is we get rid of variance. We create standards. We call this operating
rhythm, right? Now, the notion is that
makes us all predictable. But the problem is, just
like people, we want to grow. So to grow, instead of
eliminating deviance, what we need to do
is introduce it. So innovation, by definition,
is a form of deviance. And so we’re going
to have this tension. And it’s not a tension of type. It’s not, I’m an ENTP. You’re an INFJ. It’s not that. It’s one form of value actually,
literally, assaults the other. One form of value
destroys the other. I want you to think about
high-growth economies versus high-quality or
productive economies. They’re oppositional. And there’s a reason. One is creating standards. And one is creating deviance. Now, I’m going to say
something that’s going to seem very radical to you. This tension, when
used properly, is actually not only good, it’s
the basis of the growth engine. So let me give some
examples of culture and how culture
co-opts technology. Interestingly enough,
everyone talks about Tesla. And it’s a great technology. And I love Tesla. But here’s the problem. Tesla last year
sold 55,000 cars. And they lost $600 million. Now, they’re not going to lose
$600 million going forward. And they’re going to sell
maybe twice as many cars. But the notion is we’ve had some
soft quarters in the automobile industry, haven’t we? Tesla hasn’t destroyed the
automobile industry, right? What’s affecting the
automobile industry is Uber. Now, I want you to think
about Uber for a minute. Where’s the innovation in Uber? Ride sharing. I’m an old guy. We had ride sharing
when I was a kid. You called the parish priest. You called the coach. You got a ride. Look at the app that they use. Doesn’t it look like 2007,
over-the-road, trucking app? It’s not a particularly
well-run company. There’s all kinds of
legal problems with it. Where’s the innovation in Uber? Young people like you will get
in the car with a stranger, right? It’s a social innovation. I won’t. It’s like Airbnb. All of the sudden, the car is
not just something you drive. It’s something you
take someone in. Airbnb– if someone
came to my house– I have a nice house on the
Huron River– and use my towel, I take it in the backyard,
burn it, and bury it. I’d sic the dogs on them, right? The notion is this
social form of innovation has co-opted this. Same is true for Goldman Sachs. Anybody remember about four
years ago– not even four, three years ago– the number one
selling book on “The New York Times” nonfiction book was– nonfiction list was a
book called “Flash Boys” by Michael Lewis. It was about Spread Networks. The notion was Goldman
Sachs and Credit Suisse were trading a little faster
than you were– could trade. So they got the
uplift on a stock. And they got to sell,
get rid of the stock. They got to short the stock
as it started to go down. Now, think of it this way. They’re the bookie– doesn’t
matter whether Michigan or Ohio State wins. The bookie always makes money. That’s what this deal was. And everyone said,
the fix is in. The 1% is going to get
richer and richer, until what started happening? Until cryptocurrency
started to come in. And that’s what
you young people– now, where did
cryptocurrency start? And don’t say the ’98 paper. That’s not where it started. Where it really started
was in money laundering. It started with drug cartels. Where did streaming
really start? I mean, in earnest, where did
that new technology come from? The porn industry, right? Where did emojis start? It started in terrorist cells. So one of the things I want
to point out right off the bat is that technologies are often
used or first adapted by groups that they’re not intended for. Anybody see the problem
happen in Amazon right before Christmas, their
little recommendation engine, the little
problem that showed up in “The New York Times”? If you like fertilizer,
you might like black powder and ball bearings, right? The notion is
technology is powerful. When we start looking at
people who are making these smartphones, going
back a decade– it’s only been a decade– in their wildest
dreams, they never imagined that you
would use the camera to take pictures of yourself. They thought you’d be at
Yellowstone and taking the vistas and things like that. So culture has this
mitigating factor where what you want technology
to do is completely different. And think about the 13
indictments two weeks ago that Mueller has made. So the notion is this culture
piece is not only confounding, it actually does
something more powerful. And the biggest industry
to look at for this right now is pharmaceuticals. The pharmaceutical
industry is reeling. Why is it reeling? Because all of these big
pharmaceutical companies are all of the sudden
having to compete with young people like
yourself who’ve got together in a federation deal. And they have names like
BIOS Forum and Firestorm and things like that. And what they’re doing is
they’re developing medications and therapies and drugs. And they’re open source
patenting them, right? So the notion is–
here’s the question. I was at Duke the other day. And I was talking to the
head of their law school. And I said, where are all
your lawyers going these days? Because it’s tough to get
a job if you’re a lawyer. And they said, pharmaceuticals. Well, the answer is simple. What are they doing
in pharmaceuticals? They’re trying to protect
their intellectual property. Here becomes the
question for you. Who’s going to win
this bar fight? Is it going to be the
millions of people who are trying to do things
for free in this open source, or is it going to
be a handful of sort of these very monopolistic
kind of companies that are trying to protect
the intellectual property? That’s why we’re seeing
these companies start in places that don’t have strong
intellectual property laws– Tanzania, places like that,
parts of the Philippines, Cebu, other kinds of places. So I want to take a step back. So there’s this big trend, this
trend towards technology coming out of places and people
doing different things with it because of culture, and
then this other big trend of the challenge between
organizations trying to control things– we’re going to
call this longitude– and organizations networking. We’re going to call
this latitude, longitude and latitude of organizations. Well, how does
innovation actually relate to all this is– has to start with
what’s our definition. About 1993, I got to
write the definition for the federal
government for innovation. And all I did was co-opt
a very famous definition from innovation from the
1960s from Marshall McLuhan. McLuhan said innovation
has four attributes. He said, first of all, an
innovation enhances something. Well, here we are at Google. Were you the first
search engine? No. Did you have the same sort of
format as other search engines? No. You had a little box. And what Google
made better was not so much it was a faster
search or a better search at the beginning,
it was an easier search. It was a simpler search, right? So you made it better
by simplifying it. Now, the second thing
is an innovation has to eliminate something. What does the innovation kill? Now, that’s a tough one, right? I want you to think about
what did Charles Schwab kill. Does anybody remember
brokerage houses, the big brokerage
houses in– on Fifth Ave and down on Wall Street? They’re all gone now. EF Hutton, the quiet
company is really quiet. Why? Because we disintermediated
the broker. Basically, we let
trading happen directly. Of course, this is an industry
you have a lot of interest in, a lot of stakes
in the ground here. It has to return
us to something. Here’s an interesting one. It has to make us
feel like we’re– do we need to do something here? We’re OK? All right. It has to make us feel like
we’re returning to something. So think about it. What are the big trends
in restaurants right now? Is it faster food, or is
it slow food, whole food, farm to table, right? And the ultimate, the ultimate
returning us to something we feel we lost, was
developed about two blocks that direction,
which was Viagra– we’re 25 again. And finally, the most
important thing McLuhan said, and I’ve got your
little logo up here– the most important
thing McLuhan said– he said, over time,
an innovation reverses into its opposite,
the anti-innovation. Does anybody remember when
email was going to set you free? Anybody remember that? Yeah. And now what? We’re all slaves, right? We can’t put our phone down. We’re all slaves to email
and SMS and everything else. Now, I’m going to add a
few things to McLuhan. Number one, innovation is
a form of useful novelty. All that means is it
can happen anywhere. Innovation can happen anywhere. So I want you to think about
Starbucks for a minute. It’s a commodity. The Egyptians had it. It’s something that’s been
around for 3,000 years. Where’s the innovation
in Starbucks? Well, it’s theater, right? It’s the whole experience
of going to Starbucks. And they have names
for everything. Innovation pays in the future. It’s what’s called a
convex form of value. How much data do we have
on the future, anyone? How much data? So I’m coming home from
Shanghai the other day. And this guy sitting next
to me says, the dollar– is it going up or down? I said, it’s going down. He said, why do you say that? And I said, because it’s up. And that’s what currencies do. They go up and down. Duh. And he said what? He said, when? I said, I don’t know when. If I knew when, I’d
be George Soros. I’d be speculating the dollar. And I sure wouldn’t be telling
a pathetic loser like you about the dollar. So the point is the biggest
form of resistance to innovation is excessive planning or getting
stuck in the planning cycle. Have you been to the
meeting about the meeting? Have you seen the
report about the report? Yeah. You’re the big guys now. You used to be the
small guys, right? So someone else is running
experiment right now where you’re doing that. And finally, innovations
have a shelf life. They go sour like milk. So the other day,
I’m in Chicago. I’m giving the keynote speech
for the American Medical Association. I’m feeling pretty
good about this. It’s a big meeting. But I notice on Michigan Avenue,
the line goes all the way down Michigan Avenue. And I’m thinking, holy mackerel. There’s a lot of
people here hearing my silly talk about innovation. And then it occurs to me,
what’s being released? The new Apple iPhone
is being released. And they’re basically in
line to get the new iPhone. And of course, what happens
to the old iPhone the minute the new iPhone is introduced? It’s rubbish, right? It’s discounted, falls
off the commodity cycle. So the big challenge
of innovation is it’s only an innovation
for a moment in time. So this is what
an innovation is, which means it can happen
in the supply chain, can happen in marketing, can
happen in the product itself. It’s a lot more than the gadget. So there’s other
mythologies, I think, that people have
about innovation I wanted to dispel you of. First of all,
innovative organizations have very little in common. When we start looking at
the indexes for innovations, and there’s about
seven that started– there’s about 13
legitimate ones now. There’s hundreds of other ones. But let’s say out of 13
ones, there’s about 15% of the companies that
they have in common, which tells you
right off the bat that they’re not talking
about the same thing. Two, money is almost never
a barrier to innovation. I don’t know if you know
this– one of the big issues is money often creates
a constraint when you have less money that
you have to have an interesting work-around. And we could talk about how
the economy is flush with money right now because the tax
cut and all the repatriation of the money is going
to put about a trillion, maybe $2 trillion
back in this economy. So the notion is, is this really
going to go to innovation? Is it going to go
to stock buyback? Is it going to go
to private equity? Where is the money going to go? Competitors often
compete in opposite ways. So this is one that
relates to you. Google, you have how
many companies now– 58, 59 companies, right? You make everything. You’re open source, man, right? Apple– what, Apple makes what? They make nothing, right? Foxconn and InvoTech and
a consortium of companies make Apple’s product. They make design. And they make brilliant designs. You have to give that to Apple. And the other thing they make
is they make a closed operating system, right? In their ecosystem, it’s not
just different than yours. It’s almost oppositional, right? One’s playing offense. One’s playing defense. So the whole idea that people,
even in the same kind of– in a Venn diagram– you’re not
in the exact same industry, but in related industries–
compete the same way they don’t. Incumbents are almost
never first movers. This is what you have to
worry about, Google, right? Think about it as a bar fight. Anybody from a blue-collar
neighborhood, like I am? Anybody from a
blue-collar– yeah, you’re from the same
neighborhood I am, right? The notion is who
throws the– is it the big guy with
a Budweiser jacket or is it the little
guy with crazy eyes? It’s the little guy. We call this in business
first-mover advantage. And this is why startups
throw the first punch, because they can’t
compete on scope or scale. So when I start looking at
what’s happened with Google, I think your cap value this
morning is like $680 billion. I think you’re that second or
third most valuable company in the world. You’re no longer a startup. And the real challenge
here is what? Getting you to act
like you’re a startup. I look at your new building,
your beautiful building. I see all the trappings. Remember, I built
Domino’s, I helped build Domino’s in
the 1980s, which was the fastest-growing company
in the world in the 1980s. The interesting thing
is at some point, you’re going to have that
real challenge of maintenance versus growth. It turns out that
breakthrough happens at the edges of the bell curve. We’ll talk about that
later because that’s a very important point. And this is a point that
Staney’s going to talk about, which is when we started looking
at innovation indexes in 1993, less than 1% of them
on a regular basis beat the growth
benchmark on Wall Street. So the notion is most
of what you believe about innovation is untrue. And we’re going to talk
about why it’s untrue. There’s only one thing
that we’re pretty sure we know about innovation. And this is going to be the key
to the whole discussion today, and that is diversity happens
in the 30 to 50 places on the planet that
produce almost all the intellectual property. And when we look at these
places, whether it’s Tel Aviv or whether it’s a
part of Shanghai, whether it’s Ann Arbor, Michigan
or whether it’s Palo Alto or Cary, North Carolina,
wherever you’re at, one of the things
you’re going to see is it looks very
different than any place if you drove 40 miles outside
of the city boundaries, right? And one of the things we see is
that people are very different. I’m going to talk about
why that’s so important. Now, remember the whole
idea that I started with, talking about the magnitude of
innovation and the momentum, or the speed and magnitude. The two things you have to think
about is how much and how fast. That’s the question you
always must ask yourself– how much innovation, and how fast? Is a meteor careening
towards the earth? It’s going to kill us all. We better do something now. Or is it that the
ice caps are melting, and we probably should do
something in the next four or five years in order to get
our– a handle on this, right? Maybe it’s even a little
more urgent than that. Who knows? But the first thing
that companies do is they build a process. Now, here’s a question to you. Does process create deviance
or eliminate deviance? What does process do? It eliminates deviance. Yeah. So the first thing we do to
make innovation happen is what? We build something to
eliminate innovation. And this is what we do
in business schools. This is stage-gating. This is portfolio management. These are hurdle rates. So the notion is we’re
trying to gain control because what we really want
from innovation is what? We want predictable revenue. We want predictable things. So by definition, when
you build a process, you’re going to be incremental
because that’s what processes are designed to do. That’s what that tool
is designed to do. Now, what if we really
wanted to do something with much higher
magnitude for innovation? Wouldn’t we have to
change the gene pool? It’s like a great sports
team or an orchestra or a band or a great chef. Wouldn’t we have to go
out and get people, right? How long does it take to develop
a tremendous innovator here at Google? A long time– or a professor
at Michigan or Stanford or Harvard, whoever you– wherever you came
from, wherever you are. So the notion is this
type of innovation’s much higher but harder to do. That’s why Google
spends a lot of money on you, developing you, because
that’s really important. We do the same
thing at Michigan. Now, finally, if I
really, really want to change culture,
what I– if I really want to change the culture
to make innovation happen, is that going to
happen overnight? It takes forever. Now, I’m going to say something
that’s really controversial. There’s only two ways
to change culture, because culture isn’t
a thing you can touch. Culture is in the ether. Culture is the way you talk. It’s their mindset. It’s the way you interact. It’s not a thing. Culture is contained
in two things. Number one, it’s contained
in leadership, how you lead. What do we do if you’re
acquiring an underperforming firm? What is the first step when
you acquire an underperforming firm? You got it there, right? Knuckle bump. You get rid of the senior suite. The Chinese have a
wonderful saying. The fish stinks from the head. They have a wonderful
saying for everything. But that’s what that means. That means you got
to get rid of people because culture is
contained in leadership. And if you got great leaders,
you get golden handcuffs. Oh, they’re going to stay
for two or three years. The second thing that changes
culture is how you work. Now, I worked on a project that
most you know as Ecomagination. It’s the first $30 billion
spend on the green technology that General Electric did. Well, one of the
things that people get wrong about
that is it was not just to change the game about
power, which it was, partially. But it was also to
try and figure out how to get 28 divisions of
one of the world’s largest companies to work in sync. So you either change
how people lead, or you change how they work. That’s how culture gets changed. But it takes a long time. So the issue is– we all
know what’s required. But are we willing
to put the time in? So what’s the answer? Well, one of my favorite answers
comes from an old philosophy called the Dao. And you’re going to see
that a lot of my work and Staney’s work really relates
from this old Chinese idea that’s– about 200 years before
Plato is around, people start writing about this. And at the heart of
the Dao is the notion of the yin and yang, the notion
that there are conflicting forces in the universe. And these conflicting
forces produce hybrids. They create new ways
of doing things. Well, from this, the Chinese
have done something remarkable. I’ve spent a lot of time
in China over the years. The Chinese developed a way of
thinking called the “I Ching.” And it’s called– sometimes
called the “Book of Ching.” Just people use it for
predicting the future. But it’s really used so that
people can think through all the options that they’ve got. This is sometimes called
heuristics or cognitive algorithms. Finally, out of this, there’s
a lot of how-to books. And the most famous one is a
book called “The Art of War,” written by Sun Tzu. Whether that’s a real person
or not’s a real controversy, right? And then finally, the
family household– how to use this day
in and day out– well, feng shui, the whole
notion of a luopan, the whole notion of having a
compass to put this together. What it means is you don’t
have to have inputs and outputs and process because you’re
thinking the way I’m thinking. And you’re looking
at all the options. So I don’t have to supervise
you and tell you what to do. Well, this is the
heart of our thinking. And this is the
heart of our book. We had this sort of
revelation in the early 1990s, and that was the most
innovative companies, when we start looking
at predictability of what was going to make
an innovative company, were companies that had
constructive conflict. Now, this is
important because when I talk about
constructive conflict, I’m not talking about talking
disrespectfully to people. That’s not what I mean. I don’t mean
marginalizing people. I mean we have fine regard,
filial piety, collegial piety for each other. Hopefully, we have–
we like each other, maybe love each other. But it means when it
comes to ideas, we engage. Now, engagement usually
means– we talk about engagement– oh, you really
like being here at work. No. When we start looking
at innovation, it means you have an idea. And I have an idea. And they’re different ideas. Instead of being on social media
and us sniping at each other, us trolling each other,
I’m going to engage you. I’m going to get nose
to nose to you and say, I think it should be like this. And you’re going to say, I
think it needs to be like this. Now, this is a caution
to millennials. This is not an opportunity
for compromise. This is trying to push this to
the new place, the next idea, the third way, a new way. This becomes the generative
power of innovation, where you do it all. Think about it for a minute. Think about the
health care debate. I got to give my TED Talk
when President Obama rolled out the Affordable Health
Care Act at the White House. It was great. The problem is you
got one group that says this should all be public. And the other group says
it should all be private. Are those really our options? Aren’t the options
everything in between and how do we take that forward, right? We spent a trillion
dollars basically yelling at each other,
yelling over the fence. So my point about social media
is we haven’t had conflict. We’ve had yelling at each other. But no one is engaged. Is everybody following this? So the thing is we’re
going to engage ideas. So there is no such
thing as a safe place. It means if we
talk respectfully, we’re going to engage. And this means at the
heart of innovation is this concept of diversity. So diversity is more
than just a moral issue. And of course, it
is a moral issue. But it’s more. And it’s not just the
color of your skin. It’s your belief system. It’s your cognitive maps. It’s how you interact. It’s your profession. So to do this, Staney
and I built our model on Quinn and Cameron’s model. Bob Quinn had been
here, I believe. And he was sort of
one of my mentors, along with CK Prahalad
and Rudolf Arnheim. Quinn– this is their model
called the Competing Values Framework. We took it towards the
innovation direction and did a lot of research on
it over the past 30 years. And it’s often referred
to as the innovation genome– if you read the popular
literature, the innovation code. So we’re the developers of that. And it basically says there
are four types of innovators. And they compete
against each other. And the key to
innovation is following these kitty-corner competitions
and looking for hybrids. So I’m going to explain
what each of these means in just a minute. But to put it simply, innovation
has longitude and latitude. There are two continuums in
which you have to look at. And if you can figure
out those two continuums, the most important thing are the
dynamics between the opposites. Now, I want to emphasize this
is not an opposite of type. This is not an
opposite of style. This is what you’re
trying to create destroys what I’m trying to create. So when quality goes
up, you reduce errors and innovation goes down. When innovation goes
up, I introduce errors. This is sometimes called
economy at risk, right? So there’s a trade-off. What we’re saying is when these
two things show up together, what we’ve learned
in our research is those stocks
over time outperform all the other stocks, right? And they outperform the
indexes that people have. So these conflicts are
going to become central. So let me talk a little
bit about conflicts. Now, first of all, this
is not just about you. I like to call these
Russian matryoshka dolls, or Russian
nesting dolls, right? I don’t know. Do you do this? I read self-help books. And then I go, you know
what I’m going to do? I’m going to do this. I’m going to go
to Traverse City. And I’m just going
to quit my job. And I’m going to write
a crappy science fiction novel– is what I’m doing. And I’ve worked hard in my
life, made a little money. I’m doing OK. I’m chucking it all. That’s what I’m doing. Anybody get to that point? I’ve had enough of this. Yeah. But there’s another nesting
doll in my nesting doll. It’s called, I’m married. And I have three children. And I have a dean. And I have business partners. And I have people who
count on me, right? Yeah. That’s the other part. And then what happens after
that is there’s the real world. That’s the big nesting doll. There’s a pandemic. There’s a war. There’s a financial crisis. Boy, you young people
got blown out bad. No, wait. That was pretty bad. Yeah. The notion is you don’t
act alone, do you? You act in accordance
to your community. And you act in accordance
to the situation. So it’s not about you. It’s not about, I’m this
type, and that’s all equal. That’s not what’s going on. What’s going on is there’s
situational effectiveness. And it’s not situation
like, this is awkward, like it’s a social situation. It’s like what’s happening
in the outside world, and how do you need
to act to do this. It’s like playing a sports
game, like football or soccer, whatever you follow. There’s a time that you do
a certain sort of things because it’s appropriate
to do it at that time. Surgeons– the same way. So let’s look at the first one. The first one is the creative
type or the artist type. I was really lucky
when I was young. I got to be an
advisor to Steve Jobs. It was great. Walt Disney was
one of my heroes. Anybody like Disney? Other than he had some opinions
that were not very cool, but he did some cool stuff. Think about Elon Musk. Think about Tesla– not
just a company, but the– Nikki Tesla and all
that kind of stuff. So what’s interesting
about this type of person is that they’re very good
in unique situations, things we haven’t seen before. We’re trying to cure
an incurable disease. We’re going into a
battlement situation we’ve never seen before. A meteor is careening
towards the earth. It’s highly unique so
that you’re making it up as you go along. There isn’t really a lot of
precedents for these people. They have a high
tolerance for ambiguity. They love ambiguity, right? They love to spread the field. They love to try stuff. My favorite example of this
is the Large Hadron Collider. Anybody remember three years
ago the Bose– the God particle, right? Here we are in– at
CERN in Switzerland. We have seven Nobel
Prize winners. Two believe it will
create a black fissure. Do you remember this? They thought it would
create a black hole and destroy the universe. They bet a beer and
pulled the switch! See you in hell, Jurgen. These are these guys. They’re going to drive the
Harley into the pool, right? But they’re going to
see the future first because they’re looking for it. So the organizations
are very ad hoc. They’re making it
up as they go along. They’re morphing. People are coming. They’re going into
these organizations. And the artists themselves–
what they really want is they want to be creative. They’re serial monogamists. They don’t like
staying in their job. They’re always looking
at a new thing. They’re all ADD, every
last one of them. They pick up every pretty
pebble on the beach. You know what I mean? This is– it’s a Fellini movie. This is that group. It’s a Grateful Dead concert. Jerry’s playing. Mickey’s in the bus. The girl in the white dress
has had too many mushrooms. And she’s spinning. The spinners– you’re probably
too young to remember all this. That’s what’s going on here. This is this group of people. So they’re– have a high
degree of innovation. But their speed is
relatively moderate because the delta is very large. Something’s going
to happen tomorrow. This is when hell freezes over. But the biggest problem is
they’re high-risk, right? Oh, that blowed up real good. You remember last fall? SpaceX blew up a
billion-dollar rocket. And they blew up
Facebook’s rocket, too. Oh, that blowed up. Yeah. How about that? Yeah. This is this group of people. So where do we find them? We find them taking risks. We find them in strategy. We find them in the arts. I bet some of you wanted
to be in the arts. And you sort of are in the
arts, aren’t you, right? Look at the– yeah,
look at sheepish looks, because what you
really want is freedom. And you’re held together
by your vision, right? So one of the things
I learned real early in being around these people,
the early days of Silicon Valley, were these
visionaries, who used to be– like follow
the Dead or ski bums, right? And then they built these
companies, including your own, right? And how the opposite of this
group could engage this group is do things like understand
that this group is going to try and make
problems bigger, not smaller. This group doesn’t
want an answer. They want to play. So bring a fifth of Jack
Daniels and some crayons. You’re going to do
some colorin’, right? This is this group. They’re never going
to be on time, right? These are these people, right? Now, the opposite are
the responsible people, the engineers. I call them autonomous man. I’m Autonomous Man! I’ve thought of it
coming in here today. It came fully formed from
my forehead like Athena. And they quietly sing, heigh-ho,
heigh– these are these guys. They know the right way
and wrong way to do things. And they’ll point it out to you. They love to tell you,
you know, Jeff, that’s the wrong way to do that. I’m on all these
famous journals. And all these other
guys in the journal love to tell me all the
stuff I’m not doing right. You know, Jeff, you
didn’t evaluate– I’m like, I got it. OK. We wear funny hats. We have medieval ceremonies,
the whole nine yards. So these people are going to
be in predictable situations where there’s a lot of scale. And failure’s not an option. So you’re going to
see three things. Scale– we’re selling
a lot of something. We’re going to see complexity. Think about Boeing
and the new 87th– has two million moving parts. And the whole notion
is if you send– you bring that down the
wrong way, it goes kaboom. Bad things happen. You operate the wrong way, you
send the young men and women off to combat. Bad things happen. Now, interestingly enough, my
favorite example of predictable is McDonald’s. Some illiterate kid presses
the cheeseburger button. And simultaneously, somebody
shoots a cow in Argentina. Bang! And everything in
between happens. And Smithers, come here. These are these guys, right? They want everything to work. And, ironically, in
Google, as in Amazon, a lot of your success is here. It’s not in the green. It’s here, right? You’re running a back-office,
very intricate supply chain is what you’re doing, with
algorithms all over the place. So it’s all about
efficiency and quality. Where the other one was
about innovation and growth, radical innovation
and growth, this is innovation to
make things more efficient to make them work. And the people who
run this– we’re going to call them engineers. It’s all about security
and productivity, the whole idea of doing the
right way and the wrong way. So you see that these are quite
different from each other. So these people
are very good where there’s large-scale projects. We’re going to build
something really big, like this whole campus
up here at Google. And we’re going to have a
right way and a wrong way. We’re going to get
these people who have technical degrees–
engineering, medicine, the sciences. And what these people want
is they want responsibility. Because what they seek
is they seek process. And the reason they use process
is because what they have to do is take the vision
that the artist has, and they have to materialize it. They have to build the
stupid thing, right? And incidentally,
artists– one of the things you love to tell the
engineers is it’s 80% done. What’s it really mean? It’s 20% done on a good day. You’re not any– and the
artist will take credit for everything, don’t
they, engineers? They take credit. Yeah. That’s the way the artists are. They crow about it. So what you can do, artists,
when dealing with an engineer– one, show up on time. You think they don’t notice. Oh, the engineers are the
most passive-aggressive group you’ve got here. And on a dark night on a
dark road, you’ll disappear. They got a file on you like
J. Edgar Hoover, right? They absolutely
watch you, right? No. Look it. Yeah, you know this, right? The notion is look at the data. Actually read the data, right? How about that for a change? And follow the accepted form. And in the book, there’s
a lot of keys about this. Now, here’s the point. The point is the
success of this group comes down to your ability
to partner with the opposite. So the first thing
I’m telling you is on a very personal level,
the person who makes you crazy is probably what’s
missing in your ability to grow as a person
and your ability to add value to
the organization. Is everybody following this? Number two, you have
to manage appropriately to the outcome you want. So if I want the engineer
outcome, I have to use process. It’s complicated. If I want the
artist outcome, I’m going to change the gene pool. And I’m going to hedge. That’s why startups
run the way they do, because they can’t
compete on scope or scale. So the notion is I’ve got
a screwdriver, a hammer, a wrench, and a saw. They’re great tools. They’re not interchangeable. And that becomes
the first challenge. Now, we have to
encounter the other. That’s the key. I want you to think about
your own organization. Think about Larry and Sergey. You see this? They’re opposite. Lennon and McCartney– you’re
going to see this over and over again. You have to find the person
that makes you crazy. So I like superheroes. So this is Johnny
Storm, the flame. Incidentally, superheroes
need to be more inclusive. I couldn’t find any sort
of balanced superhero. So I’m sorry about that. But we’ll have to get Stanley
to work on that a little more– maybe some of the newer
ones I don’t know about. And then we got
Richards here, who’s sort of the red genius guy. Well, let’s turn this
around and talk about one of my favorite groups, which is
the compete group, the blues. These are the athletes. I teach at the Ross
School of Business, where we grade on
a curve, right? And we have sayings like,
don’t send your ducks to eagle school. And it’s like the University
of Chicago or Wharton or MIT, right? The whole notion is
it’s competitive, that what we’re
trying to develop are athletes, people
who are positive. They’re forward-moving. But the notion is
they’re ready to compete. They’re ready to do
what needs to be done. So these are people who are very
good at contentious situations. So last week, I was
the keynote speaker at the Air Force, their big
annual convention, right? You want athletes in your
military services because what? Their job is what– is
to keep everybody safe. That’s their job. So they’re going to be
aggressive in demanding situations. So whether you’re a
sports team and it’s Michigan competing
against Ohio State, or whether you’re
competing for potato chips, or you’re making
smartphones, this is where there’s someone
else coming after you, right? And we always make fun of
these people till we need them. Then we need them. Then it’s a whole
different deal, right? These are MBAs. These are our
businesspeople, right? And they’re very
market-based organizations, meaning they face outside. And they’re beholden
to shareholders or they’re beholden to guidance. They have something
that they told people they’re going to accomplish. So they’re very interested
on speed and profitability. The notion of profitability,
even in a nonprofit, is are– have we got
bigger endowment? Michigan likes to say, we’re
not interested in that. But of course, the truth is
all the best schools have what? They have these huge
endowments, right? And that’s kind of the score. And finally, these
people are all about vitality and prosperity. And you must have
some of these people because I’m walking
around your building. You got a gym. And people are tracking how– are they fit? And are they doing stuff? Who’s in first place? And who’s in last place,
and top 10 and bottom 10? So you’re not
fooling me, Google. You got these guys, too. And we need these people. We’re going to find these
people in a lot of places. We’re going to find them
wherever the challenge is results-driven. These are “get it done” people. And they get it
done very quickly. These are not long-cycle people. So they’re going to look where
the goals are focused, like we have to make the quarter. Where we got a problem
we’ve got to solve. Something didn’t work. And it’s got to work. But more importantly,
more importantly, we’re going to find these people where
challenges and resources result in some kind of a score. Now, what the sages can do– this is going to be an
interesting thing because I have to warn you about blues. Boomers in the United
States are typically blue. You know what? When I came to college, I
came to college as a wrestler. I got to come to
college as a wrestler. And that meant somebody
got a gold medal. And the rest of you were
pathetic losers and either went to therapy or learned to drink. That’s what it was, that
my generation– you ever watch the Rudolph the Red-Nosed
Reindeer thing at Christmas, and you think Santa
Claus is a total jerk? Yeah. That’s my generation, right? We went to the moon. We licked the commies. We built the net. [GRUNTING] That’s us. But our children are
not those people. Our children have
a little trouble with our goal-centricity,
our focus on goals, why we’re obsessed with goals,
why we compete and fight over everything. It’s very confusing. Well, our children
are these sages. And sages collaborate. So they’re very good at
cooperative lifestyle things. They’re very good at searching
and reapplying ideas. They’re very good
at sharing, right? They don’t like the idea
of intellectual property. They don’t like the
idea that somebody owns something, asymmetries. They have a very
democratic notion of the world, a very
inclusive, a very consensus notion of the world in
general, in general. These are generalities. Interestingly enough,
their organizations are very clannish, very
community-oriented, very network-oriented. So you’re connecting
to people that you want to connect
with, that you share some kind of personal
affinity for. You’re very
values-oriented, right? Where the boomers
are goal-oriented, you’re values-oriented. And I believe this is
creating the largest cultural shift in my lifetime. It’s not like the ’60s. I want to tell you three
things about young people that you probably already know. Over half of all live births
to women under the age of 30 starting in 2014 are
outside of marriage. The more educated the
woman is, the less likely she is to marry. Marriage is no longer normative. I’ve been married
(WHISPERING) forever, right? She’s been married
to me forever, right? The notion of what you
want to do for a living– here at Google, is this a
lifetime event at Google? Are you going to
be here forever? Interestingly enough,
according to the Pew Charitable Trust, what do you
really want out of life? You want to have impact. You want to make meaning. You want to take time off
to cure river blindness in Tanzania because you care
about culture, as opposed to my generation. And finally, the other
thing that’s very big is when you ask
young people what their religious affiliation
is, the number one growth area is what? No affiliation, right? So if you’re
talking to a boomer, I’ve been married
forever, right? I’m a practicing Roman Catholic. And I’m a capitalist pig, right? I teach in a business school. So we’re different about this. It doesn’t mean we
can’t get along. And it doesn’t mean we don’t
have a lot to teach each other. But the notion is, and it’s– I’m doing this in a very
gross way, obviously, to sort of teach this. But I also want to point
out that the Chinese are a clannish culture. They’re the opposite
of American culture. American culture
became American culture in a very ballistic
way, in a very hard way. I want you to think
about 2008, September 15, when Lehman crashed. Between September
15 and January 1, we laid off 6 million people–
bang, bang, bang, right? But we also hired
them back faster. This culture doesn’t–
takes care of people because they’re value-centric. But it also takes longer
to bring them back. So it’s a long-cycle culture. We find these people in
community service, places where conflict is managed. We find these people where we’re
dealing with people in a way that we’re trying to
help them develop. We’re trying to
mitigate conflict. And we’re going to find
these people where harmony is paramount, where people are
respecting each other in a way that they don’t have
the kind of conflicts that I’m suggesting here. So how can the
athletes engage people? Well, athletes,
boomers like me– we have to be more patient. That’s a big one because you’ve
got a lot of things that– you’ll say, I need
more time on this. If you’re a boomer, what
does the boomer say? Oh, you don’t have more time. It’s due on Wednesday. We have to be more
cheerful with you. You know how people
say, you can do it? There’s all this big thing
about positivity now. And what are old boomers
like me thinking? No. You suck. You can’t. Sit down, right? That’s what we’re thinking. But no, you’re encouraged. So we have to be
understanding of that, right? And of course, I’m dealing
in gross generalities here. But the notion is the challenge
here, the other thing that predicts value, is that
these two things get along. And that’s one of
the secrets, I think, to when my generation
and your generation collaborate, when Americans
and Chinese collaborate. I think there’s something
very powerful that happens in those communities. So I think of this like
Sue Storm and the Thing. Sue Storm’s one of
my favorite ones. She could– she
has a force field. How many would
like a force field? She can read your mind. That’s what I want to do, read
your mind, read my kids’ mind and protect them, right? And then the Thing
just smashes stuff. I’m sorry that my generation’s
kind of the Thing. We apologize. But things need to be
smashed every now and then. So there is a whole
world view here. I’m not going to spend
any time on this. But this is not sort
of pop psychology. There’s a lot of work about
how you think about time, how you think about space, what
you value, what you chase, who you want to be dealing with. So these world views
are very deep, right? And they can be
partially cultural. And there’s a lot
of neurobiology that says some of this
may actually be hardwired. I don’t want to go
there because then you start getting into eugenics. But the notion is we are a
combination of our biology and our history and
our experiences, right? So there’s problems. Let me tell you a problem. This comes with– anyone
who’s been married for a long time will
tell you that– can you change the other person? Now, you’re all young. And you think you can. I just have to tell you, as
I’m a pod from the future, you’re not going to
change the other person. The number one year
for divorce is when? It’s year one– year one. What do you figure
out in year one? They’re not going to change. You either can live
with this, or you can’t. That’s it. So why am I telling you this? Because you’re going to try
and change these people, and you can’t. So what’s the problem? When you get the reds in your
group, what do they always do? They’re very judgmental. They’ll tell you the right
way and the wrong way to do things, right? When you get the greens in
the groups, what do they do? They have no discipline. They get up and walk away. They don’t follow up. They have bad methodologies. What do– the blues? The blues love to take over. The blues– they can be boorish. [GRUNTING] Here’s what we should do. Short-term, let’s make
the meeting five minutes. It’s like a drive-by
shooting– bang, bang, bang– PowerPoint slides everywhere
because they can’t speak in complete sentences yet, right? And finally, when you get the
yellows, it’s all about, oh, we can pull together. And we can– let’s just
have another meeting. The notion is you’re going
to try and change that. You can’t. This is the downside that
goes with the upside. This is what you
have to deal with. Nation states also
have this challenge. Now, every nation state
has all four of these. And the whole idea of a nation
state’s kind of an old idea. But think about
Japanese culture. Why were the Japanese so good
at quality after the war? When we basically
invented quality– Six Sigma in New York, right? So what’s been interesting
is the Japanese had a 2,000-year-old tradition
of [? Hari ?] design. This is part of
their culture, right? Think about the Netherlands. My name’s DeGraff, right? The Netherlands– how
has the Netherlands been able to have this
incredible, prosperous community? It’s a really small country. It’s the tallest
country in the world. I don’t know if you know this. I’m not representing. Well, my mother’s Hungarian. But the notion is because things
have gone well after the war because the Dutch can’t
compete on scope or scale, so they have to
go out and trade. They have to invent
stuff, right? Think about the United States. How did we get to be
the United States? You either came here
to chase Gold Mountain, you came to escape the czar,
you came here in chains, or you thought you
were here, right? It was not exactly
a picnic, right? That’s how we do things,
rather ballistically. And finally, think
about China, where there are over 50 words
in Chinese for which uncle are you. Are you the rich uncle? Are you the crazy
uncle, the uncle we avoid, the uncle
we suck up to? Who are you in the family? The notion is you’re
always going to see this. And what happens is
we have a tendency to vilify the people who
aren’t like us instead of understanding them. And that becomes
the big challenge. So we have to have the right
person at the right job. Now, I’m going to throw some
self-help stuff out the window. It’s going to upset you. But I’m going to tell you what
basically the research says. First, the assumption of
type doesn’t mean competency. Oh, I’m an artist. But you suck, right? You’re just not a good artist. The assumption that talent
can be developed– this is my favorite one. It can be developed to a point. But you’re not going to make
Mozart or Michael Jordan. Those are things that are a
confluence of natural talent and the situation that
they find themself in. Assumption that all types
are equal– they’re not. If I’m an investment banker,
what am I trying to do? I’m trying to do blue stuff. If I’m a university professor,
I’m trying to do yellow stuff. So the blues are going to be
more valuable in one situation, the yellows in another. And finally, the
assumption that balance is better– not necessarily so. When I’m starting a
project, the greens are geniuses because they love
the ambiguity– make stuff as they go along. At the end, the
reds are geniuses. And everybody in
between is a genius. Now, remember, I haven’t
spoken about the Xers. Xers– what they’re
genius is at is connecting boomers and millennials. Xers are the
smallest generation. But they’re the most
ambidextrous generation we’ve seen. So the only reason I talk
about boomers and millennials is we’re the largest
generations by far, relatively. X are smaller. Gen Z are going to be smaller. But they might be the
most valuable, right? And incidentally,
millennials, remember this– there’s more of you now
than there are of us. You’re on the sunny
side of the hill. And if you ever figure
that out politically, boy, it’s going to get real
interesting real fast, right? So the direction you
move under stress is what people really are. So if you really want to
know what somebody is, see what they do when
they’re really under stress. Do they go get on social
media, talk to their friends? Do they shorten the
field and sort of look at the three things in front? Do they look at the data? Do they go weasel out of
stuff and sort of go off the reservation and do all
kinds of creative stuff? That will tell you
what that person is. But here becomes the
money part of this. This is the key part. How you innovate is
what you innovate. How you innovate is
what you innovate. You want radical innovation? You got to embrace the artist. You want to get scale? You got to embrace the engineer. You want to go fast? You got to embrace the athlete. You want to build
something sustainable? Embrace the sage. And you need all
four of these to win. So here’s the biggest problems
you’re going to run into. And we’re going to talk about
the data in one second on this. The biggest problem you
have is that the people who are in the green
position are orphans. The artists are orphans. The city that you’re in
right now, Ann Arbor, has more venture
capital per person than any city in
the United States. The problem is, does it relate
to anything else in this state? No. You’re orphans. So the problem is
you got to snuggle up to people who are
trying to make a living and do things in other areas. The second problem are
the blues and the yellows. And the problem is they’re
oppositional, dogs and cats. So one, you have to really
engage the conflict. And the second problem is
this is by far the longest cycle of innovation. It’s sometimes
called Death Valley or the bottom of the bathtub. How many have been in a
project that lost momentum? Anybody been on a project
that lost momentum, and you sort of– and you have to platoon
players in and out? Yeah. This is that part. And finally, the reds, the
engineers– the problem is they’re so
optimized that there’s no room to try anything else. And so when the
new thing shows up, they’re not prepared
for the new things because every moment of their
life is basically taken up. So we have to rely
on each other. Now, the other thing that’s very
important about the dynamics, which is a key
point, is innovation doesn’t move from the inside
out– moves from the outside in. And think about
this for a minute. When do people really change? When do you really change– I mean, really? Yeah. When you made a mistake,
when your life sucks, when you get divorced,
when you lose a job, when your house
goes away, somebody close to you passes away. Why do you change
when your life sucks? Because the risk
of trying something radical and the reward
of seeing where you’re at is reversed in a crisis. Is everybody following this? Whether this is Apple
trading at $3 a share in 1997, whether this is
Gandhi in the march to the sea, it also has a negative effect. This is also Hitler
and the Brownshirts. The notion is it
doesn’t move inside out. It moves outside in, where
the middle of the organization is trying to do what? Maintain. And the outside’s
trying to do what? Introduce diversity. Now, the other time that
people change is when? When they’re on a roll. You win the lottery. You got promoted. You’re in love, all that stuff. Why do you try stuff then? Because the same thing– the risk of trying
something radical and the reward of where
you’re at is reversed, right? It’s called risk
capital in our world. And incidentally,
Google, you’ve had a lot of risk capital
over the past 10 years, a lot of risk capital. So the notion is don’t launch
innovation from the inside out. Because what’ll happen to
that innovation is what? The organization will
begin to converge it. It will begin to make
it more incremental. You have to start
at the perimeter. The farther away you can
be from headquarters, the farther you can be
away from the watchful eye, the better off
you’re going to be. Now, this leads us to
this last slide here. This is referred to as
the Schumpeter cycle. And the Schumpeter cycle– I want you to think
about this for a minute. First of all, organizations are
created by greens, typically. They want to have freedom. This is Larry and Sergey– created in a garage
in Menlo, right? This is what this was. But next, we got to
get money involved. And these are the people who
gave you money early on, right? These are the big
Apollo funds and things that gave Google money
at the very beginning. And they focus the two. Then what happens is
you grow ballistically. We got to get the
yellows on board because we got to
have the right people, sell to the right people,
build the right community. And then we have to have,
ultimately, the reds on board because we have to get to scale. Is everybody following this? Now, what’s
important about this? Once we get to
scale, the problem is every capital committee
person, every metric that we’ve got, every
process that we’ve run, is designed to do
what to deviance? To eliminate it. Why didn’t Sears become Amazon? Why didn’t Microsoft
become Google, right? Why didn’t McDonald’s
become Starbucks? It had nothing to
do with competition. They had all the stuff
in the lab, right? You know this. The notion is, and this
is the radical part of this whole discussion– what
Schumpeter said is radical. And whether– it depends
on who you’re talking. We had six or seven Nobel
Prize winners in economics since 1969. I’ve talked about this. The radical part of this is
that what Schumpeter said is that we’re not
destroyed by competitors. What Schumpeter said
is we kill ourselves. We have seen the
enemy, and he is us. Our dominant logic
becomes so strong, we can’t get over it, right? And as a nation
state in America, aren’t we suffering
from this right now, that we can’t get over
our dominant logic? We can’t see the other. He calls this the point
of creative destruction. And ironically, organizations
that begin to fail quickly have a much better
chance of innovating because they have to go back
to the beginning of the cycle. Apple trading at $3 a share– is everybody following this? But think about General
Motors in 1950– had 53% of the
world car market– drip, drip, drip. It’s called flat-lining. So the notion is there’s an
interesting sort of confounding part to this, where even
though there’s tension, the best thing that can happen
is when one cycle shifts into the other cycle in a
relatively straightforward way so we can put cause
and effect together. So here’s what–
here’s the thing to do. Then I’m going to turn
this over to Staney. She’s going to
talk about the book and what you can do
here in your work. Stop believing you
can see the future. Make smaller, wider bets,
choosing big over fast. No. Pick up your pace. Go faster, right? Mistaking your managers
for innovators– no. Encourage, encourage,
and support your weirdos. We need weirdos. And incidentally, if you’re
an organization that’s really green, weirdos are reds. Is everybody following this? If you’re– if you’re
a yellow organization, the weirdos are blue. They’re just not like you. Having more ambition
than capability– talent matters. You got to go out and build
on the capability you have. I love what the
armed forces say. You don’t fight with
the army you want. You fight with the army you
have, which I think is great. Starting at the
center, move out. It’s not student body. It’s a perimeter game. I worked on a
project that you know that was originally called C2. You know it as Coke Zero. I worked on Coke Zero. The problem with Coke
Zero was everybody thought they had it right,
and they launched it as C2. We had to move it out of sight,
work it out off Broadway, and bring it back. And that became Coke Zero. Listening to the wrong people– don’t listen to
the customers who are your big customers, because
are they going to move first? They’re going to move last. Finally, failing to
connect the dots– you got to connect the dots. That’s why we’re here. You got to put all
four of these together. Now, the last part of this– I want Staney to come
up and talk about this. I want to talk about the book,
and the four steps in the book, and what you can do
to actually engage the constructive conflict. STANEY DEGRAFF: I got it. Hi. So I won’t bore you. And I won’t take too long. But we’ve created about
four really simple steps for you guys to create
a constructive conflicts because the thing about
it is you actually have to do this every day. It’s not– once you get it,
it’s almost like a muscle that you have to exercise. Once you got it, it
becomes really easy. But if you’ve never
done it before, it could be pretty
awkward and can be quite difficult, and
actually quite intimidating, to start first. So the first thing
that you have to do is really assemble a
diversity of perspective. What I love about this building
when Scott gave us a tour is there’s so many spaces
here that are very open spaces that anybody can just go to. So that’s the first thing– is
I always talk to our clients. And I will say, there has to be
a space where people actually can just go in and
just talk to one another like a
normal human being. If you put them
just in cubicles, and there’s no way for
them to go anywhere, how are they actually
going to meet other people? But this also talks
about recruiting. In a company, you can’t just
recruit one type of person or one type of skill. You might want to combine the
skills you’re looking for, with the kind of age
you’re looking for, with the kind of
skin color you’re looking for, with the
kind of background, with the kind of
diversity of thought. Where is this
person coming from? So you have to have a pool
of people in which you can communicate on a regular basis. And I think this is what
Jeff always talks about is– we have three children. And my youngest is 16. And they’re always
on social media. And what I do see
in social media, too, is people
start only looking– my friends are my friends. And my friends have the
similar view that I do. And I get frustrated when I see
a different point of view that, to me, was attacking
my point of view. I don’t like that. And I know people do that. We have our own niches. And that’s actually
quite dangerous for what we want to do. We should just open
up and start talking, have a conversation
with somebody else who’s very different from us. I was just talking to my intern. And she was talking about,
how do you meet new people? And I said, well, I used
just to go to cafés. There are a lot of
people in cafés. She’s like, I’ve never met
any new person in a café. I’m like, it’s a totally
different world now. I totally get that. But I think that’s
why you actually have to make the first step. And so this is the kind of
types of the four colors that you can find. Usually, engineers
are– they’re organized. So they can be scientists,
analysts, those kind of things. And sages are
teachers and so forth. So you can look at that. But the second step is then
you have to actually engage it. So we’re talking about if
we are doing brainstorming, for example, to solve
a particular idea or a particular challenge
in your organization, gather everybody and make sure
there are all the four colors. And then put it in
one space, one room. And then just engage. You actually have to talk. This is what Jeff
was talking about. If you do not agree with
something, then say it. I don’t agree with that. You don’t have to be mean. You can be respectful. But you have to engage. And I think, and forgive
me if I’m wrong– but I also noticed that
in my children, especially the 16-year-old, he
doesn’t like conflict. So he doesn’t like telling
people, I don’t agree with you. And it’s easier for him
to do it in social media and to write something instead
of just walking to the person and say, I really disagree. And this is actually a
skill that you have to do. You actually have to engage
that with this open-mindedness and conversation. It’s really when we create
a cognitive dissonance in our brain. And then we start
thinking about new things. So one of the things that we
also talk about is talk about– use this and say what worked
and what doesn’t work. And go through the
four colors to see what’s working, what
doesn’t right now, and to figure out what
solutions we can come up with. And when you get into
a really big conflict and you feel like you’re
stuck, the third thing that you have to do
is really make sure that you establish that
shared goal or vision. Keep on reminding
everyone why are you there, why in this room. We are trying to solve
that particular problem. And just kind of stick with
it– because if everybody has the same goal, and everybody
agrees with that same goal, and they can remove their ego– I think that’s a big thing– from the situation,
then we might be able to come
out with something. And the fourth one
is just then you have to construct
the hybrid solution. So brainstorm a lot of
arrays of good ideas and select the best ideas
from the four colors. And try to see, can I put the
green one with the red one? Could I put the blue
one and the yellow one? And we put some ideas and
some methods in the book. You can use metaphors. You could use different
kind of a creativity idea that we can put up together. And basically, the idea
is let’s not compromise. Let’s not choose
one idea to another. Let’s figure out a way that
we can ascend all this, get all disagreement together,
listen to one another, create a bond and learn how
to communicate with another, and then come out with
a better solution. Jeff? JEFF DEGRAFF: Well, thank you. Let’s finish up here. So what’s the point? Take a higher point
of view, right? It’s hard, isn’t it? It’s hard with all of the– all the anger. It’s hard to get to a
higher point of view. But have you noticed adults
are starting to do that now? They’re starting
to say, you know, even though I might be a little
bit on the side of the center line, the people
who are a little bit on the other side of the
line make a lot of sense. We can have a
conversation about that. And finally, I want you
to remember the DeGraff hypothesis, which is
probably what they’ll remember on my tombstone. Out of all the stuff
I’ve done in my life, the amount of innovation
an organization produces is inversely related to the
number of stupid PowerPoint slides or elaborate
process diagrams it makes about innovation. In the old words of Phil
Knight, you just have to do it. So I want to take us– first, I
want to thank you for having us here. I want to take a second to take
some questions, if we could. I know we’re a little over time. But I want to take
questions because I know that this is a very
counter-intuitive view of how innovation works. And what we didn’t
talk about here– I took it out of the
slide deck– is we– I did a number of– we did a lot of analysis
on the stock market– is what it came down
to, starting in 1993, more effectively in 2010. And we started looking at
these kind of indicators for contrarian points of view. And what happened with
the organizations that had high scores in
these opposite areas– it turns out that they
outperformed everybody else. And this growth index that
we’ve talked about that almost no one’s beat– I think we’ve only
lost to it, like, a half a dozen times
over the years. So the notion is it’s more than
just a typology or a style. There’s really sort of
an analytical engine underneath that. So with, that let’s take some
questions– some push-back, please? AUDIENCE: So here in the office,
we’re broken up between floor. JEFF DEGRAFF: Yeah. AUDIENCE: And those correspond
to the different verticals that we support. JEFF DEGRAFF: Yep. AUDIENCE: I’m across
North America. On my floor, there’s
a lot of innovation that happens because we
have a lot of freedom to pitch an idea, pitch a
project, and run with it. And I’m wondering, given your
hypothesis and the studies you’ve done, how can leaders
or owners of projects best identify these
opposite colors to best– I guess, to make the best team? JEFF DEGRAFF: Yeah. I think the easy answer
to that is see what people do under stress or duress. And that was that kind
of throwaway slide I had. But if you’ve got somebody
who’s primarily a sage, they’re going to be extroverted. And they’re going to
be highly interactive. So when they have
a problem, they’re going to consult
other people, right? When you’ve got somebody
who’s an athlete, when they get a problem,
what they’ll do is they’ll shut other people out. They’re the opposite
of team people. They’ll take a lot of ownership. And they’ll get rid of
things in their life. You’ll notice it’s
like spring cleaning. And they’ll focus on
one or two things. They’re very goal-oriented. When you’re looking at
somebody who’s an engineer, they’ll want to go back
and look at the data. And they’ll think
sequentially about the data. And they’ll think
about sort of combing through where the error
was and how to appreciate, how to fix the error. And if you’ve got somebody
who’s a green, they’ll– what you’ll see them do
is look for escape routes. They’re kind of wiggly– does this make sense– because
they’re very imaginative. They know how to tell a
tale in an interesting way. And they’ll try and escape. So when I look at
people, one of the things I pay close attention
to is what do people do when they’re stressed out. Does this make sense to you? And if you really want to
make things successful, I think the big thing is, what
do we constitute as success? So one of the things I notice
in places like Google is people, when they do a small
experiment, are highly successful because
it’s very artist organization. The real question becomes what? How does that make it into
something that’s scalable? And the irony of Google is what? And this is sort of
the hard truth of this. You have all these
different businesses. How many make money? How many of the
businesses make money? Is everybody following this? Yeah. Don’t think we
don’t know, right? And the notion is those are
places that effectively engage the reds and the blues, right? So there’s got to be a place,
and this was the problem when I was young in my– I was an advisor
to what’s called applied integrated
systems at Apple. The problem with Apple
in the beginning days was it was very much like
here, but they couldn’t figure how to make money. They couldn’t figure out how
to get quality sorted out. Does this make sense? So when Jobs came back,
what did he learn? He learned how to make money
and get quality sorted out. So this is the issue of– it can be successful. But to be successful all
the way through the cycle, you have to look for
these different types. Now, there’s a place in the
book you can go and take the assessment. There’s all kinds
of material online. If you go to innovatrium.org
or jeffdegraff.com, there’s tons of stuff. I think I’ve written
over the years, like, 800 articles, a lot of books. And there’s a lot
of tools on there. And no one will ever bother you. But the notion is if you want
to do something more with it, there’s a way to do that. But there’s a card game– AUDIENCE: My favorite
was the cards. JEFF DEGRAFF: Yeah. I could give some– I have some card
games if you want a– I’ll give you a card game
when we’re done here. And what’s fun about the card
game is just to ask a person, pick a card. Tell me what you’re
insanely great at. And people are
pretty self-aware. They’ll go, I’m
insanely great at this. Go, great. That’s great. Have someone else pick a card. You’re the opposite. OK. The two of you are now
going to work on this. Now, here’s the challenge,
the real challenge, because we do this every
day in the innovation labs, some of the biggest
innovations people write about. The biggest challenge
is keeping the conflict constructive, right? And I’ll put it to you this way. I have what I call big Jeff
days and little Jeff days. Big Jeff days, I’m very open
to constructive conflict. Little Jeff days– you
ever get in that mood where you’re like, oh, god,
I can’t deal with this person today? Now– and I’m not rude. And I’m not going to
fight in a negative way. I’m just going to disengage. I’m going to say,
today, today, there’s a lot stuff going on in my life. And I love you. And I want to work with you. But today, I’m taking a holiday. I’m getting off the grid today. So part of it is
knowing to do that. I think it’s also a
good life skill when you have a partner, right? Someone else? AUDIENCE: Hey. So you talked a lot about
the power of tension and the creative power
of constructive conflict. And I think most
people would agree that America is in a
heightened state of tension and divide nowadays. JEFF DEGRAFF: Yeah. It sure is. AUDIENCE: So I’m curious
what you would recommend, or how can we harness
this tension productively? JEFF DEGRAFF: I think it’s sort
of the opposite of the bell curve. I think what’s happening
is actually twofold. First of all, I
think the conflict that we’re having is
a conflict that we’ve needed to have since the 1980s. And the way I would
characterize the conflict is when I looked at the–
before the election, I was at one of the
big government agencies giving this talk. And so I’m not trying
to be political. I’m trying to illuminate
something here. And I said I thought that
Trump may very well win the election, which, of course,
was contrary to what everybody said. And they said, why? And I said, think of bell curve. Who got blown out after
the ’08 recession? There were four groups
that got blown out. The first group
were young people. You guys got blown out. It was bad. It was really bad. The second was old people
who were on retirement. They got blown out. And I– the penny
dropped when I was at a– I walked by a Bernie
rally here on campus. And I’d never seen young
people with old people before. This was like– and
I pay attention. I’m one of those guys who
pays a lot of attention to incongruities–
and went, wow. Well, think about it. Those are two groups that
are one end of the bell curve that get blown out. The other groups that got
blown out were people of color. All right. Think about all the groups
in the United States. And a lot of those
groups didn’t vote. They disengaged, right? Look at the numbers. And then I need you
to think about people who look like me, who
are from neighborhoods like where I’m from. And they’ve been downwardly
mobile since about ’83. And the notion is their
real economic power, their lack of education,
their mortality rate– look at anything right
now in those numbers. And they were really mad. Out of all of those groups,
only one of them voted. Does this make sense? And they voted big, right? So when we start looking at
the numbers, what I looked at was who’s actually
going to act, which is an innovation question. Is this making sense to you? AUDIENCE: Yeah. JEFF DEGRAFF: So
now the opposite of that is how this
will come together is you start looking at the
middle of the bell curve. And you draw a line. What’s happening is
reasonable people, which constitute about
the 80% of the middle, are starting to
talk to each other. So you think about being
in a business school, business school’s filled
with a lot of University of Chicago people,
very conservative– they read “The Economist”
every day and the “Journal.” It’s a little right for me. And then there’s other
people in the school– read “The Times”
every day, “Bloomberg” every day– a little left. I read the “Post.” I’m kind of a down the– I’m sort of that
guy, down the middle. But the notion is
you’re starting to see those people come together. The majority– is this
making sense to you? AUDIENCE: Yeah. JEFF DEGRAFF: And
they’re starting to say, we’re going to have to take
care of some of these things that we haven’t taken care of. So there are issues of–
there are social issues. And there are economic issues. And both of those issues– I believe what you’re starting
to see is that come together. I think what’ll
happen is this will be horribly painful for the
next 18 months for both sides. Nobody’s going to win this. But it’s a kitchen. It should have started
as a kitchen discussion. And it’s now a fight that’s
kind of calming down. That’s my interpretation
of what’s happening. And I think at the end
of this, and that this is– because remember, conflict,
even if it’s not constructive, will often result in innovation. I think we will have
to get to a new place. Is everybody following this? AUDIENCE: Thank you. JEFF DEGRAFF: So
that’s my take on it. But I can imagine being young
and seeing this rinkside. It’s not any– and it’s– when people compare this to– just drop the comparisons
to Hitler or to Watergate. This is a whole
different animal. And I think a lot of those
metaphors or analogies are– don’t work. I think we’re looking
at a world that’s connected both vertically
and horizontally. And I think the horizontal
connections are so much stronger in your generation. I think it’s going
to be very different. AUDIENCE: Thank you. JEFF DEGRAFF: Anyone else? AUDIENCE: Yeah. What’s your perspective
on the historical cycles of innovation? Even in terms of nostalgia,
as an example, this year, with all this turmoil, people
are looking back to the 1980s, things like that. JEFF DEGRAFF: Yeah. AUDIENCE: What do you think
about as the decade’s best? JEFF DEGRAFF: Yeah. I’d like to say that I
don’t think they exist, but I do think they exist. Here’s– there’s a very
famous book written at the end of the 1800s by Oswald Spengler. And Spengler basically–
it’s a– book’s called “The Decline
of the West.” And Spengler is this German
academic who basically gets it. He’s really– he starts
showing what’s going to happen. And what’s amazing is he
predicts the First World War and the Second World War. And the reason he predicts them
is he understands the cycle. So he’s looking at cycles. And economies happen in cycles. So the part that I
would say I disagree is that we’re in a very
different accelerated age with all of this horizontal,
what I call longitude, connection, the network world,
Niall Ferguson’s new book, “The Square and the
Tower,” that stuff. And I think that’s true,
at least to some degree. I think the other–
but the other thing is human nature’s human nature. And what happens in human nature
is you develop a theory of– a new theory of governance. And over time, that theory
decays into the very thing it tried not to do. This is what Weber wrote about. “Nineteen Eighty-Four”– this
is what Orwell wrote about. The animals are all
going to be equal. And then they become
Stalinist, right? Does this make sense to you? So yes, I think there
is something to cycles. I think predicting–
when people start predicting how many years
they’re going to be, like the Russians do, or
how big they’re going to be, then I think it
gets a little iffy. Am I making sense? So in summary, yes, I
think there are cycles. But I think the cycles are
a little less predictive than people think they are. Did I answer your question? What do you think? That’s my question. What do you think? AUDIENCE: I think that
when innovation happens, for a few years, people accept
that all this change happened and then maybe calm
down for a few years because they’re riding the
wave of the changes that took place, technology birth. JEFF DEGRAFF: Did you read– the woman’s name is Jackson. She’s the president of
Rensselaer Polytechnic. Did you read her book
on innovation cycles? She basically
points something out that I think is very damning. She said that most of the
wave, which your company was built on, was– sort of ended in the mid-’90s,
and that what we’ve been doing is iterations of that
wave for a long time. And I know that
when people start talking about collaborative,
open, innovation networks– I worked on Apple Net,
which became iTunes. That’s, what, ’84, ’85, right? You start thinking about what
people talk about is now. The Innovatrium was built
10 years before WeWork. So the notion is when
you start looking at where the genesis of things
are and you– particularly, you know where this is really fun? Music, right? I grew up in the ’70s. I went to high
school in the ’70s. And people say,
well, what happened? You give all the music genres
that people listen to now. And they all
happened in the ’70s. Is this making sense to you? So the ’90s– the
’90s for technology, ’70s for music– the issue
becomes, at what point is that long cycle done, right? And usually, it has to
be disrupted to be done. But you’re– I think
you’re seeing disruption. I come back to what
I talked about. Maybe you weren’t
in the room– we were talking about
disruption of institutions. Marriage is different now. Religion is different now. What work is is different now. Universities will
soon be different now. Trust me, they will. Medicine will be different now. And I think those are
more subtle long cycles. Anyone else? One more. AUDIENCE: Kind of
going back to what you’re talking about with
contrarian indicators and how you saw that these
companies far outperformed any others, I was wondering
if you any insight as to how we can distill that down and
take that back to our teams, put that to work for us? JEFF DEGRAFF: I think
what I would recommend is I’d read the book, right? And I’d say one of the things
that the book will give you clues about– some of this– obviously,
I can’t open up the whole can of worms here. So I don’t want
over-commit to something. But you’ll notice that there
are a list of attributes that could easily be turned
into key indicators that you could follow. And then I’d ask you to do
some of your own research, to saying if you get some
of these contrarian key indicators, and I think in– pardon? Can you answer that? Yeah. STANEY DEGRAFF: OK. I can speak a little
bit toward that. So we wanted to see if the
culture differences in the four quadrants, the four
colors, would appear also in company performances. So we looked through
20 years of data. But what’s interesting to me–
when we looked at the companies who do well over the– again, it’s like they
do well, red and green, and then blue and yellow. And when four of them are–
showed up at the same time, that’s better. So you can be very good at blue. And you can be
very good at green. You can be good at red. But when you’re good
at both, your value– it’s multiplied. That’s what I’m trying to say. So what does that mean? When I saw the data, the
data, the hard data, actually, is telling me that you have
to have your basics down. And this especially good
for you guys, for Google, because you are
based on algorithm. So your reds have to
be very, very strong. But then on top
of that, you have to have these loose process,
these groups of people who can take it to the next
place to look at future growth. But it is in this combinations,
I think, in particular more, from my research– look much
more relevant and much more vibrant than the– the blue and yellows
have to hold it together. But for me, what I saw
mostly is the red and green. JEFF DEGRAFF: I also think
if you go back and look at some of the earlier
books that I’ve done, there’s a lot of clues in there
about very specific things to measure. Obviously, it gets a little– we’re making this overly simple
to make the concept accessible because there’s a lot
of interdependencies. There’s a lot of
complexity under the hood, just like your business, right? And some of the stuff is of
great interest to Wall Street and not to normal people. And some stuff’s more interest
to people who are governance. If you read the book,
and then the next step is maybe read this book,
“Leading Innovation,” which I wrote– I don’t know– 15 years ago,
then I think the interesting thing would be– then
if you have some– you run it for a while. I’d be interested to see how– I’d be interested in hearing
from you what happens. What’d you find, right? That would be of interest to me. AUDIENCE: “Making Stone Soup”
has a really great formula, too. JEFF DEGRAFF: Yeah. There’s a thin book that
we wrote for jump-starting in the labs. I don’t know if you know this. The University of Michigan
has a certified professional innovator program,
which we created, right? So that’s the first certificate
program they ever did. It’s through the School
of Engineering, right? We wrote a book for it
called “Making Stone Soup.” And it’s a– I think it’s, like,
$7 and on Android. But it’s a great way to start. That’s a great point, Lindsey. It’s a great way to start. It’s easy. It’s easy way to start. So like I said, the
challenge of this is it’s so easy
that people think it’s like a DISC test
or a Myers-Briggs test. The challenge is if
you start going down that road, what I’m
suggesting to you is you start by– a beginner. You read as a beginner. But if you want to go all
the way down the road, that’s something you can do also
with just the resources that are publicly available. It can get a lot more
sophisticated a lot faster. Anything else? Thank you. I appreciate you hanging
out of here to the end. And good luck with all this. And thanks for having us out. AUDIENCE: Thank you. [APPLAUSE]

4 comments

  1. It's a nice story alluding to lots of (anecdotal) evidence but I couldn't find any paper of Dr Jeff DeGraff on any of the topics in his talk published in any of the peer-reviewed (leading) research periodicals in these fields. He doesn't list any such papers at his website, nor Google is able to come up with any. Of course many books but anyone can write anything and a publisher will publish it as long as they think some profit can be made. Perhaps some peer-reviewed research could be published on this.

  2. Interesting version of the four basic personality types in the context of work and innovation. I'm personally not a fan of this angry/preachy presentation style, but the points they make are valid nevertheless.

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