AN EXPLORATION OF THE ‘ORDERS OF IGNORANCE’ IN DESIGN, MARKETING AND STRATEGIC BUSINESS DECISION MAKING.
The necessity of innovation in business is no longer debatable and to the design professions it is second nature. The literature is abundant with the history of, and need for innovation in its’ various guises. As long as one agrees with this need, then variable levels of risk are a component of any business strategy. Risk is simply varying quantities of unknowns which in this context I refer to as ignorance. The following is an attempt to categorize levels of ignorance in order to provide a tool for management and designers to manage risk.
At any time in the matrix of management, marketing, and design activities, there must be a certain amount of ‘unknown’ issues if any organization is to adopt any level of innovation. The literature is abundant in supporting the need for innovation and the quest for technological supremacy is a legacy to that need. But whether the innovation is minimal (marginal differentiation) or fundamental, there will be unknowns. If there are no unknowns, then the enterprise (say two fruit & vegetable stands at a market who both have the same wholesale suppliers) will come down to pricing, personality, and some other intangibles. The same will apply to medium and large corporations who choose to slug it out for market share. Unless the market stabilizes and chooses to support both, the likelihood is that one will grow and the other will shrink.
In more sophisticated companies, the need to innovate is generally understood and even in package goods conglomerates, marginal differentiation for established brands, is mixed with more daring innovation for dogs, the dying, and new concepts. But what is common to these strategies is that there are, there have to be unknowns, or levels of ignorance.
I will address the “Orders of Ignorance” beginning with Zero, or the use of known facts, and proceed to the Fifth Order of Ignorance, in which one is simply oblivious, or in the case of artists, there is a willingness to suspend disbelief. I will illustrate how the orders may have implications on the plans of senior management and departments, that would not be apparent without an understanding of where in the process one is, what is necessary to resolve the ignorance, what the cost implications might be, and what impact these might have on corporate strategy.
ZERO ORDER OF IGNORANCE
This is the domain of facts; we have facts to work with which are totally unambiguous and there is consequently no need to summon additional resources to reach a solution. One may proceed to application.
This stage is common to many disciplines, creative or otherwise. It is the state that many small and medium enterprises (SMEs) find themselves in when management has no imagination or costs have been cut so far that nobody can entertain the cost of something new. ‘Just do another one of what we had before’ or ‘copy our closest competitor’s best selling model’ are common justifications for this strategy.
It takes virtually no creativity to repeat last year’s model or to copy a competitor so companies employing this strategy will have difficulty keeping creative staff, be they engineering, design, or marketing.
This is the territory of marginal differentiation where there are many competitors, very slim margins, mature products, and probably consolidation.
FIRST ORDER OF IGNORANCE
At the First Order of Ignorance , you know that you do not know something, you know what it is, and there is a clear source from which to obtain the required knowledge or there is a clear process for finding that information. This is a state in which we may be very confident in our understanding of our processes; we are not dealing with facts but we don’t have many uncertainties about our ability to work through to a solution.
Chances are that the references to the information are known or are readily available from reliable sources (particularly with the web). The main implication is that the information is probably available to competitors also and that any strategic advantage will be short-term at best.
There is not a great requirement for original thinking and there is little risk of not finding the necessary information. Therefore the potential for substantial added value is very limited, and even if an innovation is the outcome, it will probably be easily copied or leapfrogged and any competitive advantage will be short lived.
There will be virtually no ability to establish a sustainable advantage and consequently the strategies emerging from this low level of innovation must be considered as short-term defensive, or a strategy requiring a rapid exit. There would not be a strong justification for major investments in intellectual property or capital unless the returns were extremely rapid. It would probably be a ‘first to market’ opportunity with a high probability of copies in short order. The exception to this is where a company has enormous capital for advertising and can afford to capture a distribution chain.
COST OF EFFORT/RISKS:
The costs at this level 1OoI are easily calculable, should be reliable, and should be low, except as noted above. This is a typical strategy for unsophisticated management.
SECOND ORDER OF IGNORANCE
At 2OoI, we also know that we do not know something. We also know what it is, but we do not have a clear or direct process for finding the information.
This is a bit of a paradox because one would assume that if the problem is known and can be described, then the solution should be definable and/or obtainable. But this is where individual knowledge or awareness may impede progress to a solution. A senior manager may not wish to spend the money necessary to uncover the information, or he/she may not be aware that it is obtainable.
The need for creativity at 2OoI is low as we are simply looking for an answer to a question that we have already identified. Probably most design, engineering, and architecture exists at this level.
There might be limited opportunities for differentiation in niche markets but there is unlikely to be any sustainable advantage. 2OoI would be typical for a company creating line extensions and new applications into new niches but this strategy needs to be balanced with other strategies that can create longer streams of protectable revenue.
COST OF EFFORT/RISKS:
The cost at 2OoI can be substantial if the internal barriers are artificial and the ignorance is impeding progress. But it is still not high unless something is seriously out of order. This should not be an issue in a company with competent management, but in a small or medium sized family owned company, it is all too common.
The risks are that 2OoI brings no sustainable advantage and so the potential to be out-innovated by a competitor is high and any advantage may only be temporary.
THE THIRD ORDER OF IGNORANCE.
At 3OoI we do know that we don’t know something but we are not sure of what it is. The question does not exist therefore a process cannot be defined to obtain it. This stage demands a two stage approach; first to define the question, and then to formulate a strategy for finding the solution.
3OoI is where most of the author’s professional practice occurred. A client would engage assuming a simple (and cheap) solution to a strategic problem that had not been properly thought through. Consequently, an inordinate amount of time and money would have been spent in the formulation of the right question. Predominantly, this meant educating the client personnel about the fundamentals of strategic competition. (A fact exacerbated by the predominantly subsidiary nature of industry in Canada and other ‘branch plant’ economies in which management personnel generally do not have a great exposure to innovation strategies.)
A frequent implication of 3OoI is the loss of time in a first-to-market environment. There is little intellectual property likely to emerge from this stage and so first-to-market is a crucial strategic advantage. Management must be aware of the limited strategic advantages in a specific product line and must be aware of the need to balance this tactic with other innovation strategies.
THE FOURTH ORDER OF IGNORANCE.
At 4OoI we have a situation in which there is not a suitably efficient way to discover that we don’t know something, although we are aware that we are looking for something. This is typical of a situation in which a marketing head would realize that his product lines needed some energy or renewal, but has not gone as far as to analyze what is required; new technology, new designs, new channel partners, new marketing strategy, new business strategy, etc. Similarly, in basic research, one might be interested in the field of diabetes, but have not yet decided on a strategy for starting to narrow the direction of efforts.
If one is indeed conscious of this level of ignorance, then this is an ideal opportunity for long range planning. Chances are that products are mature and that there is cash flow sufficient to support new activities. Ideally this occurs on a continuing basis but clearly the cost implications can be substantial and the potential to lose market position while going through the process is real.
Since this is the realm of many start-up companies, it deserves mention here. Typically started by young inexperienced individuals, the failure rate for start-ups is around 90%. Although this is seldom a reflection on the quality of their concepts, it is a reminder that enterprises need management skill, not just good ideas.
As mentioned in the description, there will be several areas for creative contribution. In a successful company, whether product or services, these activities will occur continuously and should result in solidly protectable intellectual property .
There is clearly an opportunity for various kinds of intellectual property and other points for differentiation at 4OoI and they will have a direct impact on the cost and time to market. They will also directly determine to what degree the company can be a leader in it’s sector, and to what degree it can protect that leadership. As the pace of innovation accelerates, and as new competitors constantly emerge, developing a leadership position in IP has become a survival strategy for many companies. The IP not only provides a monopoly position for the life of patents, it can be a valuable source of license fees and other income.
COST OF EFFORT/RISKS:
Obviously, the range of cost at 4OoI can be huge and must be assessed in terms of a company’s ability to finance it. However, increasingly it is becoming an issue of ‘can we afford not to?’ As the linkages between technology, design, brand, and customer experience converge, management must consider these issues in the context of requirements for growth and shareholder satisfaction. There is a decreasing amount of space for risk-averse companies.
THE FIFTH ORDER OF IGNORANCE
This is a little tricky because I think there are two different levels at work; the conscious and the sub-conscious. Taking the latter first, this is the domain of the truly ignorant who simply don’t understand that they don’t know something; possibly also the idiot-savant.
In the conscious sphere, this is the domain of artists and designers who can willfully suspend belief or disbelief and work in a state of skillful ignorance. (One can argue that this is not ignorance at all, but my point here is that the strategic implications are similar.)
Exploration is the key word here. We don’t know what we are looking for. But we know we have to search, and this can apply equally to design, technology, or biotechnology; the three most prominent leadership issues currently in the targets of sophisticated businesses. The principle question is to what depth, and that is where sophisticated management is required to make strategic decisions as to what direction is going to best achieve the results that shareholders are looking for.
The potential for creative contribution is very high and it really is up to enlightened management to steer and give freedom to the various creative energies available from the CEO down. There may be an assumption that the process starts with technology and progresses along a fairly traditional sequential path, but innovative businesses will more likely treat them as simultaneously essential activities. Many companies will outsource at this stage, (incorrectly) assuming that their staff are not capable of being creative. This is becoming increasingly evident in the e-business world where the communication lines are bottom up, not top down.
The major attribute of 5OoI is that it is essentially pre-competitive and therefore must be invisible. This paradigm is changing with the acceleration of technology development, but it is still rare however, I suspect it will become more common.
COST OF EFFORT/RISKS:
At 5OoI it is difficult to estimate costs. A company must simply budget a portion of revenues and just forge forward. In Canada this averages 1-2% (lower than most G7 countries) although before the 2001 downturn, some (Nortel) were spending up to 12%. Macromedia spends 30%, and some smaller biotechnology firms spend up to 50%. Clearly this is a vast differential and it is not fair to compare auto manufacturing with biosciences, but in each sector there is a cost associated with leadership. This must be compared to the risk of not doing it or at what level. For progressive global firms it is simply not an option; innovate or die. In an environment of consolidation, a firm must lead in a niche (or be #2) to avoid becoming a takeover target, (however, for some firms this is a desirable strategy).
The object of this paper is to provide a tool for managers of small to large businesses to understand and manage the different phases of innovation in the context of strategic management.