Prerequisites for an experimentation culture - Leadership (3/4)

This is the third of four articles.

Companies often find that company culture is the biggest obstacle when trying to scale up experimentation. Shared behaviors, beliefs, and values can make getting to an experimentation culture difficult or impossible.

This is the third of four articles covering prerequisites to get to an experimentation culture. 

This first article covered the needed mindsets: https://www.linkedin.com/pulse/prerequisites-get-experimentation-culture-mindset-14-ruben-de-boer/

The second article covered the organizational structure: https://www.linkedin.com/pulse/prerequisites-get-experimentation-culture-company-24-ruben-de-boer/

This article will cover leadership.

The need for a new leadership model

With an improved mindset and organizational structure, there is a need for a new leadership model. The way decisions are made will change.

In the ideal situation, experimentation is fully democratized. This means anyone can set up an experiment without approval from higher management. Of course, this requires reliable tools, data, documentation, and safeguards. Democratization is only possible if running experiments is cheap, safe, and easy so that anyone can test new ideas.

Besides democratizing experimentation, also ideation needs to be democratized. As all ideas get tested in the ideal situation, and as most ideas are not winners, even those from experts and higher management, democratization ideation is vital.

If anyone can come up with ideas and run experiments, their outcomes must be leading. People will not contribute to experimentation if they don't believe the results will make a difference. In other words, data trumps opinions.

Getting executives to abide by this rule is not easy. They are used to making decisions, and employees ask them for approval. Already in 1998, Jeff Bezos referred to two types of decision-making:

Type 1 decisions: “Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.”

Type 2 decisions: “But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high-judgment individuals or small groups.”

As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. This results in slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.

With experimentation, at least two versions of the product exist: an A version and a B version. When experimentation is applied to Type 2 management decisions, it’s very easy to walk back through the door by simply turning off B and returning to A.

Executives must accept this new reality, as nothing stalls innovation faster than a so-called HiPPO (highest-paid person’s opinion).

In the worst situation, the HiPPO makes the decisions (type 1 and 2). A higher manager decides what is happening. In the best situation, everyone can come up with ideas, run experiments, and make decisions based on the results. 

What’s the job of managers and directors?

All this raises the question that if all decisions are made by experiment outcomes, then what’s the job of managers?

Obviously, managers need to set up systems, resources, and standards that allow for large-scale, trustworthy experimentation. They need to ensure experimentation is integrated into all business and product roadmaps, and these roadmaps need to be flexible based on experimental outcomes.

Furthermore, when checking out different resources, you find there is plenty to do for managers in an experimentation-oriented organization.

1. Build trust

Leaders should build trust. Without trust in management, people will resist change.

Two important things leaders can do to build trust are giving sufficient autonomy and being role models.

For everyone to set up experiments, autonomy is essential. It should be the standard throughout the organization and stimulated by leaders. This is not only good for experimentation. Autonomy supported by management leads to several positive employee outcomes, such as well-being and engagement.

Managers also need to be authentic and role models to build trust. They should live by the same rules as all others. This means all their ideas should be tested, and the experimental outcomes are leading. It also means accepting multiple product horizons, as they can differ due to experimental outcomes.

2. Set grand challenges

As mentioned in the excellent book Experimentation Works by Stephen Thomke, a manager’s job is to set grand challenges that can be broken into testable hypotheses and key performance metrics. For example, they can set the challenge the company has to have the best customer experience in the industry. A strong and appealing vision is thus critical.

3. Stimulate an outcome-driven organization

Essential for an experimentation culture is to think and work customer-centric. Focusing on outcomes over outputs will help organizations create the right products for their customers.

An output is a thing, like a product or a feature. A business outcome is a change. It could be a change in revenue, the customer’s behavior, and satisfaction levels. Outcomes are about the impacts that a company’s products and features have on the customers or the business itself.

Companies focussing on outcomes put their customers at the heart of their business. They first think of the outcomes they want to achieve and then what products to build or update to achieve that outcome.

Of course, the resulting output should be validated through experimentation to analyze if it indeed results in the anticipated outcome.

4. Balance exploration versus exploitation and allow curiosity

Exploration creates value through innovation, whereas exploitation captures value through current operations. Executives have to find the right balance between the two to maximize outcomes.

Another prerequisite is curiosity. Leaders with the wrong mindset could fear curiosity as it increases risk and inefficiency. But without curiosity, exploration will be impossible. Leaders can stimulate curiosity by hiring curious minds, emphasizing learning, letting employees broaden their interests, and design thinking and brainstorming sessions.

5. Stimulate creativity and innovation

Managers need to stimulate creativity and innovation. Creativity can be stimulated by inducing play, fun, and happiness. This leads to not only creativity but also a healthier life. If you haven’t seen it, check out the TED talk by Catherine Price on how to have true fun and how it leads to a healthier life: https://www.ted.com/talks/catherine_price_why_having_fun_is_the_secret_to_a_healthier_life

Furthermore, there should be sufficient time for creative and innovative projects. Innovative ideas should get management support, and people should be recognized for creative ideas.

In strong hierarchal organizations, innovative ideas from the lower levels generally have difficulty making it up the ladder for approval by higher management. However, in an experimental organization, innovation should be fully supported.

Furthermore, research shows there is a strong correlation between workplace fun and creative performance.

6. Set the right consistent rewards

Leaders need to set the right consistent rewards. Research, again by Thomke, shows mixed signals in rewards result in confusion, mistrust, and less experimentation. For example, the message is inconsistent if leaders tell you to experiment, but your personal assessment is based on output instead of outcome. This results in less trust and less experimentation. Hence, rewards should be consistent.

Other excellent rewards are those for the biggest failures. At one organization I worked for, the biggest failures were celebrated with champagne, glitters, and trophies. This created a very safe environment for failure.

Also, at Online Dialogue, every last Friday of the month is F*ck up Friday. During 4 p.m. and 5 p.m., everyone shares their biggest failure(s) of that month. Others respond with applause and empathy, and they learn.

Accept experimental outcomes make decisions

As a leader in an experiment-driven company, you have to accept that experimental outcomes make decisions. You need to build trust, set challenges, set up systems, resources, and standards that allow for large-scale, trustworthy experimentation, stimulate creativity and innovation, and set the right consistent rewards.

Sources

• Experimentation Works - Stefan Thomke
• Online Dialogue’s culture scan
• Democratizing online controlled experiments at Booking.com: https://arxiv.org/pdf/1710.08217.pdf
• Continuous discovery methods - Teresa Torres 
• The Business Case for Curiosity: https://hbr.org/2018/09/the-business-case-for-curiosity

Image credit: https://www.teamgantt.com/blog/how-to-evolve-from-being-a-boss-to-being-a-leader