Viewpoint: March 22, 2005
Before I dive into the featured topic, I wanted to let you know that I have finally launched a more traditional blog called Edge Perspectives. I will continue to offer more detailed commentary in postings here to my web site, but I am feeling a need to have a place where I can post shorter items and where you can contribute reactions to my postings. I hope you will join me at Edge Perspectives where I will have an opportunity to stay in touch more frequently.
Harvard Business Review published an excerpt from the new book, The Only Sustainable Edge, that I co-authored with John Seely Brown. The book itself won’t be available until the end of March (and its official release date is not until early May). But, in the meantime, you can get a glimpse of some of our perspectives in the article, “Productive Friction: How Difficult Business Partnerships Can Accelerate Innovation.”
In the article, we challenge the conventional wisdom that friction is bad – remember all the hype in the dot com days about the advent of the “frictionless economy”? Certainly, as companies have relentlessly focused on process efficiency over the past couple of decades, friction has acquired a bad rap. Executives have been handed a mandate to root it out wherever it rears its ugly head.
But what if friction is not all bad? What if some friction is actually essential to fuel the innovation process? By rooting out all friction, we may actually damage, if not destroy, innovation capacity required to drive growth and economic value creation. Certainly that is the direction that many of our most prominent performance initiatives have taken us – the watchwords have been “standardize” and “routinize”, hardly the fertile ground for rapid innovation.
Innovation is messy, wasteful and, yes, it generates an awful lot of friction as people with very different experiences and skill sets come together and tackle challenging problems and opportunities. Of course, even in this context, friction is not always good . . . or productive. In many cases, friction can degenerate rapidly into animosity, suspicion and stalemate – it becomes profoundly dysfunctional.
So, what makes the difference between productive friction and dysfunctional friction? Well, you’ll have to read our article (and, ultimately, the book) to get the full story. We take examples from a broad range of industries and products, including flat panel displays, the construction industry, apparel and networking equipment to illustrate the key ingredients of productive friction. We even use the example of the development of common law as an illustration of productive friction in action (hey, I have to find some way to get a return on my rather substantial investment in obtaining a law degree!). We make the case that mastering the techniques of productive friction will increasingly differentiate those who create value from those who destroy value in a highly competitive global economy.
In our article, we focus specifically on the challenge of harnessing productive friction across enterprise boundaries. Many analysts have discussed techniques for getting people from different backgrounds to work productively together within the enterprise. One of the best books on this subject is Dorothy Leonard’s Wellsprings of Knowledge, which develops the concept of “creative abrasion”. As difficult as it is to get “creative abrasion” to work within the enterprise, multiply those difficulties by an order of magnitude when collaboration spans the boundaries of multiple enterprises. And yet, in a world of increasing business specialization, this is where some of the most promising opportunities for innovation and capability building reside. If managers can figure out how to bring people from different highly specialized enterprises together to address shared business problems and opportunities and help them to bridge the many barriers that prevent these people from working effectively together, they can build a powerful foundation for sustained innovation and capability building.
That’s the opportunity we see for productive friction. At a very high level, productive friction requires four ingredients to come together – performance targets, people, prototypes and pattern recognition(the four P’s of productive friction – some habits are hard to break: as a consultant, I used alliteration to make frameworks more memorable although, for the life of me, I still can’t remember all 7 S’s of the McKinsey organizational model). Each one of these ingredients requires careful crafting to create the conditions for productive friction. The article describes the techniques for crafting each of these elements in some details and illustrates them with a variety of examples of productive friction in action.
For the purposes of this brief overview, I want to focus briefly on pattern recognition because, in many respects, it is the least obvious and yet arguably the most powerful of the four elements. What do I mean by pattern recognition? As JSB and I define it, pattern recognition involves connecting the dots, stepping back from a broad range of experiences with productive friction and being able to assess where the most promising learning and innovation has occurred and then developing the institutional mechanisms to enhance the dissemination of this learning and innovation across organizations. In other words, pattern recognition amplifies and sustains the impact of individual experiences with productive friction. In the absence of pattern recognition, productive friction may generate significant learning and innovation, but the effects remain highly localized and temporary. So, even when companies get productive friction right, they lose most of the benefits because the learning and innovation never moves beyond the boundaries of the group that invested all that time and effort to generate it in the first place.
Productive friction is not just about innovation. Executives who remain focused on cost reduction may be surprised to learn that their organizations consume a significant amount of resource in exception handling, especially at the boundaries of their enterprise. When exceptions are handled well, productive friction often occurs. More often than one would care to admit, dysfunctional friction results. In either case, there are usually substantial opportunities to enhance the productivity of this friction. The topic of exception handling is worthy of an entirely separate posting, perhaps even an article or, dare I say it, a book. Let me just say for now that, by mastering the techniques of productive friction, executives have a significant opportunity to combine near-term cost reduction with building longer-term innovation capability. That’s a powerful business proposition that few executives can afford to ignore.
But this is not just an opportunity – it’s a necessity. In my last posting, I discussed the concept of innovation blowback developed in the cover article JSB and I wrote for McKinsey Quarterly (actually this article was loosely adapted from our forthcoming book as well). Briefly, we made the case in that article that emerging markets like China and India are becoming catalysts for profound product and process innovation.These innovations will then provide a platform for successful attacker strategies targeted at large, entrenched players within the more developed economies of the U.S. and Europe. What is driving this product and process innovation? You guessed it – productive friction.Companies that master the techniques of productive friction will be in the best position to mount attacker strategies. The companies that don’t master these techniques will more likely be vulnerable defenders of established positions.
More generally, we make the case in The Only Sustainable Edge that successful business strategies will depend upon dynamic specialization – making hard choices about what business activities to focus on while at the same time making aggressive commitments to build capability rapidly around these areas of specialization. As companies become more specialized, they will need to learn how to collaborate more effectively with other equally specialized companies – not just to access complementary resources, but to push each other to get better faster. Productive friction becomes an essential management technique to support dynamic specialization. Without it, companies run the risk of becoming more and more insular, focused on their own specialization and unaware of the opportunities to deepen their own capabilities through constructive engagement with others.
In many respects, our focus on productive friction becomes quite subversive. It challenges the dominant model that has shaped how people think about corporations over the past seventy years. Much of the writing about corporations in economics and business literature more generally has been shaped by an essay on “The Nature of the Firm” published by Ronald Coase in 1937. In this essay, Ronald Coase focuses on the role of the firm in systematically reducing transaction or interaction costs – the costs associated with finding resources, getting information about the resources, negotiating to gain access to resources, coordinating and monitoring the performance of resources and then switching from one resource provider to another if performance is not satisfactory. Coase actually had a very nuanced view of transaction costs and their role in creating economic value, but many of his followers have significantly narrowed the view of transaction costs to focus on efficiency considerations. Over time, this perspective has come to define the primary role of the firm as economizing on transaction costs.
We challenge this view. As market competition intensifies and the pace of change accelerates, we see the primary rationale for the firm shifting. Rather than focusing on the firm primarily as an institution designed to achieve higher levels of efficiency, firms will have to justify their existence based on their ability to accelerate capability building and talent development. Within this perspective, management techniques like productive friction then become central to the continued existence of the firm. More broadly, we begin to change our view of friction in business activity. Rather than focusing on it solely as a source of inefficiency, and therefore something to be stamped out, we need to recognize that certain types of friction are central to learning and innovation. We need to learn how to recognize these types of friction and help to create conditions for this type of friction to flourish. In fact, as we come to appreciate the value of productive friction and become more comfortable with the management techniques required to manage it effectively, we will find ourselves seeking out more opportunities to spark productive friction.
So, what should executives do about this? The first step is to realistically assess your organization’s capacity for productive friction. A more systematic diagnostic is likely to be required, but you can start by asking three relatively simple questions:
– What are the five most innovative companies with capabilities that complement yours? Do you have effective business partnerships with them? If not, why not?
– Identify your five most significant business partners today. To what extent did you pick them because of the opportunity to accelerate your own internal capability building?
– Identify your five most significant business innovations (they could be either product or process innovations) over the past year. How many of them emerged from interactions with business partners?
The answers to these questions should give you a broad sense of the degree to which your organization has harnessed the full potential of productive friction. If your company is like most, productive friction is at best an ad hoc event. It has not been designed into your organization – for example, by explicitly targeting certain business partners in terms of their potential to help generate productive friction. Nor are management techniques for productive friction well understood or broadly applied within most companies.
If your company is like most, it will need to pay much more attention to productive friction. Without learning and innovation, we will struggle with diminishing returns as each new round of efficiency become harder to find and capture. Productive friction offers a way out of this bind.