Helping the Messy Middle Come of Age in 2019

7 Ambitious Systems Innovation Initiatives for the Coming Year

How do we shape the world to be a better place when wicked problems and complex systems are at the root of the hardest challenges and most exciting opportunities? Last year I left ThoughtWorks to set up Practical Clarity and focus my attention on this very question. I was rewarded with a whirlwind of chances to see complex systems rise up and stake claim to innovation’s center stage.  In domains as diverse as Commercial Digital Transformation, Humanitarian Aid, Environmental Activism, and the Smart City Revolution, there have been calls for more powerful forms innovation.  

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I spent my entire career pushing at one aspect or another of systems innovation, often as the lone voice in a room.  It is exciting to finally see a broader recognition that innovation needs to grow up and solve harder problems.    

With so much happening last year, it naturally raises the question of what advocates of system innovation should be doing in 2019.   I’ve been in the habit of using the end of year holidays to step back and consider the prior year and look at opportunities waiting for bold action in the year ahead.  This year, in system innovation’s moment of opportunity, there are seven candidate initiatives that particularly excite me. They are surprisingly diverse challenges, variously considering ways to design complex solutions in a messy world, manage truly agile organizations, and define new creative roles.  

Yet, they are all centered on the mastering same core skill, complex systems innovation, or what Ian Gray and I called, working the Messy Middle.  The Messy Middle is where innovator’s tackle the transformation of complex systems in an uncertain and changing world.  It’s an exciting opportunity space, where big problems can be addressed by powerful solutions.  Until now it has been difficult to access with conventional innovation techniques. My hope is that 2019 is a turning point, and that work on these seven initiatives can help complex system innovation become a rich new source of creative change.     

1) See One Big Problem: Join Efforts Across Domains

Few things change the game like seeing a problem differently.   Over the last decade, I’ve been looking at the places where innovation failed to rise to important challenges.  The deeper this exploration went into the challenges faced by different sectors, the more distinct innovation gaps seemed to emerge.   

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Business executives saw ever shorter cycles of innovation, shrinking their opportunities into brief “shark fins” so that even the fastest moving product designers were haunted by the threat of rapid obsolescence.  Sponsors of Humanitarian innovations were frustrated for a different reason, their most promising pilot innovations failed to scale(the baby bunny problem).  Meanwhile, environmental activists looked at big unsolved “wicked” problemsthreatening climate and species survival and asked why their most complex challenges seemed immune to impactful innovation.  Even the emergence of disruptive Fourth Industrial Revolution technologies raised questions about how today’s innovators, with their focus on product innovations and status quo improvements, could capitalize on major system disruption

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When viewed as distinct challenges, these creative shortcomings seem overwhelming, problem after problem with no end in sight.  Yet, what if rapid obsolescence, failure to scale, wicked problems, and disruption actually arise from the same underlying system innovation challenges?  Then the picture looks much different.  There is an opportunity to address seemingly distinct big challenges with a shared suite of system innovation techniques.  

We could all work together, building the tools needed to solve what is ultimately the same big problem.

A meeting in the first week of the year helped demonstrate the potential for shared ownership of complex system innovation’s development.  I was able to join in a multi-sector conversation that examined the issues associated with evidence gathering in both the Aid and Conservation.  While these are different fields they share common system innovation needs, which helped expose new insights regarding the use of evidence for complex system change.  In 2019 we have good reason to work across big problem spaces and subject domains to drive systems innovation to the next level.    

2) Scale Scaling Skills: Get Serious About Mastering Journeys to Scale

One of the most promising areas for substantive progress in complex systems innovation is the scaling of innovations.  A solid foundation has been laid, which can now be used to make a step change in the capacity to scale innovations.  

In 2015, as a contribution to the World Humanitarian Summit, Ian Gray and I looked at the persistent problem innovations faced when going to scale.  We concluded that even promising pilots failed to scale because innovators and their sponsors outside the commercial sector vastly underestimated the complexity of the systems needed support their idea.    There was a systems innovation gap, a trip through the Messy Middle, between a promising pilot and a consistently replicable invention. 

Since then, a number of innovation programs in the Aid Sector have focused on the scaling challenge, working to create examples complete, consistent and sustainable innovations.  In 2018 the Humanitarian Innovation Fund (HIF) issued a broad assessment of current scaling challenges, which will be followed in early 2019 by a Global Alliance for Humanitarian Innovation (GAHI) scaling framework developed by Lesley Bourns and me. 

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The GAHI framework breaks the scaling challenge into four major parts; Value Creation, Difficult Barriers, Sustainability, and Contextual Variation.   Using this model, it is possible to structure and compare much of the one-off learning that has happened since 2015, consolidating progress on a host of different aspects of the scaling challenge: 

1.    Define Varied Paths to Scale:  This work can include poorly understood challenges such as scaling product innovations in resource poor environments and scaling complex system solutions.  

2.    Solve the Hard Problems:  Some specific barriers to scale are particularly difficult to navigate, such as finding business models when the users of the innovation lack funds.  

3.    Integrate Supporting Tools:  There are a growing number of scaling tools for jobs such as assessing scaling readiness.   It should now be possible to see how these overlap with one another, where there are gaps, and how new tools might be developed.    

3) Close the Theory Gap: Make Academics Actionable

It may seem like the theoretical work in systems should provide a similar foundation for practice building.  Surprisingly, this has been less true.  Systems thinking has deep academic and theoretical roots, with fundamental insights about the nature of systems (chaotic behavior, fractal scale, emergent behaviors) and modeling (game theory, simulations, neural networks). Ironically, this rich academic foundation has been slow to translate into useful on the ground tools and practicesin support of systems innovators.   

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It’s a damning (but all too common) indictment when clever simulation models are greeted with a furrowed brow from on the ground practitioners, puzzlement followed by the question 

 “OK … but what do I do with this?”  Closing the gap between innovation practitioners, who measure their success in terms of actual change in the real world, and academic specialists who value their ability to generate insights, would provide a valuable opportunity to amplify the impact of systems innovation.  Answering three practical questions in 2019 could help bridge the gap between theory and action:    

  1.  Useful Models– What models (formal or informal) are possible given the limits of real world information?

  2.  Practical Application– How are the results of these models applied to solve real world innovation challenges?

  3.  Actionable Visualization– What is the best way to visualize complex systems insights in the service of on the ground innovators? 

It may be necessary to clear some space to truly leverage this work.  Some widely adopted tools that have been associated with system thinking (such as linear Theories of Change) may need to be given a more limited role if they are to be replaced with more sophisticated views of systems and systems behaviors.   

4) Assemble Smart Cities: Unbundle and Do LEGO’s

A great deal is being written about the coming transformation of global systems with Fourth Industrial Revolution technologiessuch as IOT, artificial intelligence, and robotics.  It’s an exciting prospect. Yet, thus far, promised transformations like Smart Cities have been little more than technical upgrades to existing services … better access to sidewalk WiFi, lower cost street light operations, or fancier tolling schemes.  This is not a digital transformation.  It is hardly more than a digital paint job. 

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If new technology is to be boldly disruptive, we need to help breaks ties that bind status quo systems and reassemble them in creative new ways.  The magic of a Smart City will come from the systems innovator’s ability to unbundle and reassemble services. 

MIT’s Neil Gershenfeld expounds on the power that comes from treating the world like a box of LEGO’s. Seeing a city as interconnecting pieces allows us to flexibly rearchitect wide swaths of the world in disruptive new ways. It’s a powerful concept, but how do we apply this unbundling and reassembly as an intentional form of innovation?  How do sponsors foster this level of change?  How are systems unbundled and who reassembles the newly empowered pieces?  How should system transformation methodologies work at a city level?  How is fairness assured and how are unexpected dangers avoided?  How do assembled systems continue to evolve?   

So, while I’m excited about the creative potential (and worried about the associated disruption), this type of radical system re-invention requires a lot of skills which we have yet to master.  This is an area where our prior work in system’s innovation can help drive pioneering experiments in 2019.   

5) Organizational Collaboration: Beyond a Merely Adaptive Enterprise  

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Another form of complex system assembly that is receiving significant attention is the creation of collaborative efforts among independent organizations.  Assembling of networks of actors is being proposed as a disruptive strategy for reinventing the Aid Sector, reimagining the roles of NGO’s in light of new technologies such as Cash Programming (this is where debit cards are provided for use in local markets rather than shipping food and goods half way across the world).  

This is a level of systems innovation that pushes organization design beyond the more narrowly defined innovations in Adaptive Management.   Adaptive management makes use of feedback loops inside an organization to select and manage projects based on real time insights from the outside world. It is a good step forward, but for most organizations their core capabilities remain the same, even if they are better able to apply changing insights to projects.  

Collaborative networks push the bounds or organizational design quite a bit further.   Here, the capabilities of different organizations are linked together in a flexible complex systemthat generate value through the efforts multiple organizations.   Here the LEGO blocks are institutions, some old, some new, and some transformed for to take advantage of the new opportunity. 

It’s brings potentially big original solutions to hard complex problems.  While collaborative organizations offer exceptional power to the systems innovator, they comes with a great many new demands. The loosely woven network of institutions it must still be able to set a shared direction, architect a sustainable relationship among actors, establish trust, integrate operations and respond to change.    

Working for Save the Children UK, Hannah Reichart and I are collaborating on a paper that seeks to provide a MECE view of practical strategies for structuring collaborative networksof organizations.   The paper should be released in the first half of 2019, which should provide ample opportunity to explore applications with ambitious new system collaborations in Aid and other sectors.   

6) Construct an Innovation Ecosystem: Innovation 4.0 

If it takes a village to raise a child, it takes an ecosystem to support an innovator … and not just any ecosystem.  Over the last hundred years, three major innovation methodologies have been developed in support of our modern economy.   

  •   1st Generation - Reductionist Engineering

  •  2nd Generation - Incremental Improvement

  •  3rd Generation – Lean Product Exploration

  •  4th Generation – Complex Systems Innovation

Each past innovation technique built out a tailored ecosystem with supporting tools,institutions and roles.  These ecosystems that span multiple domains, including financing tools, investment portfolios, project management, organizational design, training, technical tools, measurement, and even ethics, tailored to support the needs of the specific methodology.  

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Today, the fourth generation of innovation, Complex Systems Innovation, requires its own ecosystem of supporting services that recognizes the complexity of the work and the long journey needed to evolve sustainable systems based solutions.  

There is surprisingly little that can be directly reused from the ecosystems of prior methodologies. As a result, the challenge in 2019 will be to build an ecosystem for complex innovation from the ground up. This will require innovations to support innovators, pioneering new work in fields as diverse as finance, organizational design, and ethics.   

I have developed a soon to be released paper from the Global Alliance for Humanitarian Innovation (GAHI) that outlines the scale of this work and raises a call to action for broad based progress in 2019.   GAHI will be leveraging this ecosystem model as a way to structure its diverse activities in the coming year, providing a global foundation of for this work in the Aid Sector.  There is reason to believe that ecosystem building progress in Aid can be transferred over to other domains where systems innovation is a growing concern (see project 1).            

7) Arise Choreographers! Empower Systems Innovation’s Standard Bearers

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This final project has the deepest hold on my heart and my passion.  Each generation of innovation has its standard bearer and regards particular talents as particularly valuable.   In reductionist innovation, the technically brilliant engineer is highly regarded, while in lean exploratory innovation, the search is for an unusually creative designer.  

Systems Innovation is in critical need of its own central creative figure.  This person must provide a holistic view of complex challenges and help shape a systems based solution that addresses them.  They must be able to work with diverse stakeholders, driving action through effective storytelling, and guiding the evolution of the transformation through a series of complex pivots.   It is a role that demands big picture thinking, broad based expertise across multiple domains, and a flexible approach to shaping work with others.  

The commercial sector has little in the way of formal roles that reflect this big picture architectural leadership of creative change.   As a result, its necessary to look in the Arts to find a good example of this kind of big picture creativity.  Systems innovation needs to formalize the role of a systems “choreographer” who can be seen as an essential contributor in every complex system transformation.   

In 2019, while other aspects of the methodology of systems transformation and its supporting ecosystem are taking big steps forward, it will be equally important to establish a place for the Choreographer’s craft, explaining what they do and why it is so important.  Since there is hardly an army of these uniquely talented people at hand for hiring, it will be necessary to recruit, train and support this new set of talents inside organizations that have very little experience with this kind of multi-skill professional.   

Innovations in Innovation Don't Just Happen

Having spent years pushing and pulling against the shortcomings of older models of innovation, I have been stripped of any idealism I might have about innovation naturally evolving in response to new challenges. Each generational advance in innovation has been the subject of hard thought and harder work.

It won't be any different in 2019. Complex systems innovation is a powerful tool that addresses the world's most pressing challenges. It's a difficult but rewarding form of creativity whose time has come, but this means its time for those of us who want to be the choreographers of complex system transformations to step up and help innovation in the Messy Middle come of age.

 

When the Moats Dry Up: Opening the Gates to Disruptive Innovators

Dan McClure and Michael Kearns (VP of Enterprise Strategy at Toptal)

“If I wish to engage, then the enemy, for all his high ramparts and deep moats, cannot avoid engagement.” - Sun Tzu

How frightening should the prospect of disruptive innovators be for the leaders of a well-run business? There’s a reason for skepticism. Even with all the talk of innovation and creative change in the global marketplace, for many years business success has depended as much on defending against change as enabling it.

There’s a long history of walls and moats protecting established enterprises from the rabble of insurgent competitors, with security in size and experience giving market leaders the confidence of kings safe in their high keep. While the media coverage goes to firms with cool new technologies, many industries have sustained the position of their leading firms by incrementally adopting advances from within the safety of proven market defenses. Is there a reason to believe those walls are failing after so many years of good service sustaining the status quo?

Something is certainly going on. There are those like Klaus Schwab of the World Economic Forum who see this as the cusp of a new era, where disruptive innovators rush into the world’s markets, driving a “transformation that will be unlike anything humankind has experienced before.”

There’s been a notable acceleration of the business lifecycle, with new businesses achieving scale at progressively faster rates. The leaders of technology birthed in the 20th Century were able to cut the time to reach $10 billion dollars in revenue from decades to years. 

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It’s become a commonly cited truism that the time a successful firm spends in the Fortune 500 has been shrinking. These are troubling, but seemingly slow motion shifts in the competitive landscape. The simple acceleration of the business lifecycle doesn’t in itself make disruptive competitors any more threatening. To understand this new danger, it will be necessary to look at individual stories of industries that have experienced not a slow increase in the pace of their evolution, but a quick, devastating overwhelming of defenses that have long been impregnable.

Disruption Seen Up Close

Much has been written about Uber, but to appreciate the story fully it’s necessary to look back at an industry with a long history of business model stability. The taxi business traces its roots to renaissance England and the reign of James I. The first public hackney coach was documented in 1605 and was legally regulated as early as 1635. Licenses were first issued in 1662, and so 70 years before the birth of George Washington, the foundations of the taxi industry were already in place.   

Technology augmented rather than disrupted this business model. Joseph Hansom patented the Hansom Cab, providing improved speed and safety for horse drawn carriages. Gottleib Daimler introduced both gasoline powered cabs and the taximeter just before the turn of the 20th century. Over the next 80 years, incremental technology improvements focused on operational optimization, including two way radios (1940s) and computer assisted dispatch (1980s). 

Four hundred years of successful business operation made this a highly sought after business opportunity. The walls around the business were substantial. Regulatory barriers constrained entry into the market so a New York City taxi medallion, the right to operate a single cab in New York, could fetch a record price of $1.4 million dollars in 2013. This high initial capital cost was combined with substantial operating expertise needed to manage a large, transitory workforce and maintain a fleet of vehicles in hard use. As a result, with walls and moats in place, innovations crept along.

There was no disruptive technology immediately on the horizon, which makes the sudden, strong challenge to the industry by an upstart that came seemingly out of nowhere all the more amazing. The official launch of Uber was in San Francisco on July 5, 2010, followed by New York, Chicago, Washington, DC and Paris. By March 2015, the number of Uber cars operating in NYC surpassed the number of medallion cabs (14,088 versus 13,587). By year end there would be over 1 million active Uber drivers working in over 300 cities, and the 1 billionth Uber trip would be taken in England.

It took just five years to undermine a business model with a history of four hundred years of success. What happened? We are used to disruption driven by the emergence of a technology that makes old products and services obsolete. No one uses fax machines because email is a vastly superior offering. Physical media content such as CDs, newspapers and print encyclopedias are all trumped by the inherent superiority of digital innovations in their space.

Technology can kill. Yet, it’s easy to assume that exceptional, unpredictable dangers from a subversive shift in technology are an unlucky bullet that happens to hit home. It’s seen as a rare danger, so leaders can remain confident in the capacity of the moats and walls built around their business to defend them from competitors.  

This complacency is misplaced. Technology plays a part, but it is not disruption’s only driver. Today, innovators can attack a broad range of opportunities by reimagining foundational aspects of business ecosystems that support scale, including marketing, manufacturing, logistics and product design. They are empowered to to blow up established business ecosystems. Let’s look at three ways they use this capability to turn venerable industries into vulnerable businesses.   

1. Disruptors Are Masters at Inventing Ecosystems

Back to the story of Uber. Although there is some controversy as to whether or not Uber is a “disruptor” in the academic sense, it’s hard to think of many other companies that have impacted so many people, in such a wide geographic distribution, in such a short period of time. 

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Yet, although Uber is often looked at as a classic Silicon Valley “tech startup,” Uber has no technical silver bullet. They didn’t invent flying cars, nor did they pioneer the foundational technologies that make the service possible (mobile GPS, digitized maps, mobile payments, etc.). What they did was create a new ecosystem. This is a different type of disruption, one that circumvents the traditional walls and moats that businesses have relied on to protect their business positions. 

At their core, businesses are ecosystems. They connect elements in ways that create market value in a particular way. Traditionally, competition has operated within the established value ecosystems of each market. An improvement might be made in the performance of a particular node or link in the chain, but the overall structure of value creation remains intact.  

This creates barriers to entry because established firms can optimize their performance at scale and lay defenses around any possible point of casual entry (e.g. the requirement of taxi medallions to operate a cab in New York City). That explains the stability of the business model for four centuries. 

What Uber leveraged was a different kind of technical power. Uber’s founders Garrett Camp and Travis Kalanick didn’t compete within the premises of the established ecosystem. They avoided the need to buy and maintain cars by changing the assumption that vehicles were owned by the firm. They used readily available mobile technology to find a middle ground between hail on the street taxis and far more expense limousine operations. They circumvented the need for taxi medallions and the burdens of fixed assets that might only see use during periods of peak demand. Their ecosystem was constructed out of different assumptions and readily available technology.  

Uber versus the taxi industry is a battle of business ecosystems. Uber has clearly won with a superior product. Of course things are not all sunshine and roses for the firm. There are legitimate concerns with the fairness of the labor model and there have been sometimes successful regulatory defenses mounted in some cities, with more likely to come. New competitors like Lyft have introduced competition within Uber’s ecosystem, aiming to compete on traditional grounds by optimizing execution and lowering prices.  

Also troubling for Uber is the emergence of new disruptive ecosystems based on self driving cars. Here genuinely original technology will enable new business ecosystems that will likely make Uber’s creative new ecosystem obsolete in less than 20 years. In this new fight, they will face established industry players (GM, BMW, etc.), large, new entrants into the field (Apple, Google) and most likely a few companies that we haven’t heard of (and may not yet be formed).

2. Disruptors Undermine Scale by Digitizing Product

Ford Motor Company’s Rouge Plant looms over the southern outskirts of Detroit. A huge, integrated factory operation indicative of the advantages of scale in the automotive industry, the plant has its own electrical plant, steel mill, and over 100 miles of interior railroad track. And yet, since the 2003 entry of Tesla into the field, disruptive competitors have shown that the ability to manufacture at scale is no longer protection on its own. 

What makes this indifference possible is an increasing digitalization of the product automotive companies sell. Elon Musk has described his flagship car, the Tesla Model S, to be “a very sophisticated computer on wheels”, making Tesla “a software company as much as it is a hardware company.” This was brought home when in the fall of 2015, Tesla upgraded cars currently in operation with new self-driving capabilities. This wasn’t a feature added to new product offerings. It was a software update.  

As more of the value of products is lodged in digital systems, new rules govern scale. Firms that can scale their creative efforts have the advantage. This makes sense of both Google’s and Apple’s credible entry into an industry that would have ridiculed their presumption just a few decades earlier. As cars become increasingly digital, the key differentiators will shift to capabilities in software engineering, user experience, upgradeability, mapping, and machine learning. These have not been seen as core capabilities of established automotive firms. 

At the same time, traditional manufacturing strengths are becoming ever more commoditized and accessible through third party providers. In the past the cost of setting up design, manufacturing and distribution capabilities at scale was so great that it prohibited new entrants. Electric/digital cars don’t face the same barriers. Driven more by software than mechanical systems, they require two thirds fewer moving parts. So while the costs of scaling up auto manufacturing aren’t low, just look at the investment required to get Tesla to today’s scale, they are far more manageable than they were just 15 years ago.

Digital products and services can replace many offerings in many industries. Advice-based businesses such as healthcare and financial services are also ripe for the digitization of their service offerings. Once the break is made, removing the constraint that scale is dependent on hiring more highly skilled professionals, the door will be open to innovators who can imagine new business ecosystems for promoting health and building wealth.

3. Disruptors Turn Insurmountable Barriers into Mere Obstacles

Intellectual property or other proprietary arrangements are often a final bastion of defense for firms seeking to keep competitors at bay. Patents and proprietary business arrangements defend key junctions in the business ecosystem, blocking the way for others who might hope to reach customers. 

This of course assumes that the competitor can’t simply take a different road, going around rather than through the point of contention. This is the situation that developed in the razor blade industry. In 1901 King Gillette introduced his innovative safety razor, followed in 1921 by Colonel Jacob Schick with his own design. Over the next 90 years Schick and Gillette consolidated over 95% of the market share in the multi-billion dollar US razors and cartridges market. Deep retail relationships and manufacturing capabilities supported their seemingly unassailable dominance.

Inventing an alternative production and market ecosystem would seem to be a fool's quest. Yet in 2012 Harry’s and Dollar Shave Club were formed leveraging outsourced manufacturing, low-cost digital marketing, and online-first sales strategies with clever social media usage (see the original DSC videos done by the CEO, which went viral). Once again they did not reinvent the razor, they reinvented the razor business ecosystem. 2015 online razor sales are estimated at $263 million, with Gillette claiming only 20% (vs 60% in the traditional retail market), and in September 2015 Dollar Shave Club passed Schick to become the second best selling razor cartridge in the US.

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By the end of 2015, 2.2 million subscribers had participated in Dollar Shave Club’s ecosystem, which they were able to cobble together around the entrenched position of Gillette and Schick in the space of months not decades.

The digital sales channels these insurgents leveraged were already well developed alternatives to traditional retail. Now even more powerful alternatives to side step market positions exist with the introduction of context-aware Internet of Things (IOT) devices and the intelligent engagement driven by Big Data. Maker technologies that enable customized “printed” products are another powerful tool for turning barriers into mere obstacles. As the cost and effort required to conceive, design, manufacture, and market a product declines, the pace and scale of disruption can only increase.

Disruptors Overwhelming the Walls and Crossing the Moats

The walls of scale have crumbled. The moats of proprietary position are drying up. The threat from disruptors is real and when the attack comes it is likely to be in the form of a new business ecosystem that creates an entirely new basis for opportunity. Sweeping away 100 years, or even four centuries of stability, is now the work of a few years or even months. 

Upstarts and insurgents aren’t throwing themselves against the walls of the scaled-up enterprise. They don’t need to. They can invent an entirely new market ecosystem that changes the rules and the possibilities in a market. That’s complex work, but its empowered by an ability to digitize products that replace the powers of scale with prowess at innovation. Even the strategically defended barriers based on IP or market relationships lose their power when disruptors can simply leverage new technology and market alternatives to circumvent them.  

So what should established companies do? Digging the moat deeper or building the walls higher may delay the competitive threat, but it won’t prevent it. Deep market disruptions from new business ecosystems are inevitable, but being a victim of this disruption is not. Companies must adopt strategies that allow them to respond to disruption more quickly and effectively, or more ambitiously, to be disruptors themselves.

Google calls these “other bets”, innovations that go beyond incremental improvements to existing products. Doing other bets, blowing up ecosystems, is a new and different skill, one that requires abandoning the castle with its illusion of safety by developing a focus on constant reinvention and the pursuit of new business ecosystems.

But how?

To disrupt on the outside, companies must first be disruptive internally. They must abandon long, inflexible planning cycles, drive decisions based on measurable outcomes vs. politics (“selling” in the Lean Startup context), and accept that the only constant for any organization, even in the near-term, is rapid, unrelenting change. Rather than attempt to predict the future, companies should be built to seize the opportunities the future brings, whether planned or totally unexpected.

Originally Published on ThoughtWorks Insights