The Medici Effect: What Elephants & Epidemics Can Teach Us About Innovation (Harvard Business School Press, Paperback Edition), is a fascinating journey to the "Intersection, a place where ideas from different fields and cultures meet and collide, ultimately igniting an explosion of extraordinary discoveries.
Through eye-opening stories of individuals who found intersections across domains as diverse as business, science, art, and politics, Frans Johansson outlines specific strategies would-be innovators can employ that will lead them to the Intersection and help them leverage the ideas they find there.
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DC: This book has had "incredible legs as they say, because the topic is so important. The topic is "Innovation and Frans' insights into how innovation really works are both important to business as well as just being a really interesting story to tell.
FJ: This presentation is summarized in three words: Diversity Drives Innovation. The diversity of perspective, diversity of cultures and the diversity of industries drive innovation. David mentioned that this book had legs, which is true; so far it has been translated into 16 languages and published all over the world. I think this is because innovation is so critical, and innovation is critical because the world is changing very fast.
I will give you a few very quick examples of how that expresses itself. The number 26, is the number of minutes it takes for a new factory to open up in China. Every 26 minutes there is a new factory. By the time I am done with this presentation, there will be two new factories open, up and running. There is another number, 15, which is the number of days it takes for the Spanish fashion company Zara to go through the design of a new piece of apparel, that skirt or blouse you buy in New York or Singapore. Fifteen days from the design floor to the item getting in a store half a world away. A quintuple bypass in the US is $120,000, in Thailand it's $12,000 and that includes round-trip airfare and a brief vacation package.
Change is happening all over the world and the only way you can respond to that is through innovation, by coming up with new ideas, new products or services. You can come up with new marketing campaigns, you can come up with new ways of organizing the supply chain or distribution, or R&D, it doesn't matter. Innovation also applies to cutting costs, but that is generally a short-term process and the things that have really made an impact are ones that increased revenue.
The message today is that Diversity Drives Innovation. For example, in my book I talk about an architect named Mick Pearce who is tasked with a challenge to build the largest building in Harare, the capital of Zimbabwe, and this building is to contain no air conditioning. He manages to build this revolutionary building by looking at how termites build their mounds on the African Savannah.
Now the termites in these mounds need to keep it at exactly 87 degrees Fahrenheit in order to grow a fungi that helps to digest wood, but the temperature on the African Savannah can drop to below 3 degrees at night and runs over 100 degrees during the day so, how do the termites manage to keep it at exactly 87 degrees Fahrenheit? At the bottom of the mound are vents, and a cool pool of mud and this allows air currents to circulate throughout the mound. By opening and closing the vents constantly, the termites can regulate the temperature. Pearce used the same principle in designing this building, EastGate, which is the largest building in Harare, the capital of Zimbabwe, with no AC unit, and saved them $1 million right off the bat. In addition, the building uses about 90% less energy than any other building around it.
Now why did Mick Pearce think of this? It wasn't because he was an architect focusing exclusively on a set of architectural solutions to this problem and it certainly wasn't because he was a termitologist only focusing on issues that termitologist focus on. Instead, what he did was combine perspectives from these two different fields and when he did that he broke new ground. You can all do that, you can all break new ground.
We do that by stepping into a place I call the intersection. This is the place that different cultures connect. At this intersection lies where we unleash the power of the Medici effect. What I mean by the Medici effect is an explosion of unusual ideas and this is what happens when diverse teams come together. The reason I call this the Medici effect is because of the Medici family, which essentially ruled the city of Florence in Italy about 500 years ago. They sponsored creative individuals from lots of separate disciplines like architects, sculptors, painters, and scientists from all of Europe, even as far away as from China.
Leonardo DaVinci is one of the most famous individuals that they sponsored. They drew these people to the city of Florence where they were able to break down the boundaries between the different fields and between the different cultures, and essentially, it became one of the most creative eras in European history, the Renaissance. And this is not about the Renaissance or the Medici family but the effect that they created and we can create the same effect with the companies that we work for.
Now let me talk a little bit about why it is that diversity drives innovation. What is the reason that stepping into this intersection of different cultures or different industries gives you the best chance of developing groundbreaking ideas? All new ideas are really combinations of existing ideas and so just like the example I showed you earlier of the architect and the termite mound what happened there was he combined two specific ideas - how termites built the buildings and the notion of actually building buildings for humans - and came up with something new. Build the building according to the principles of the way termites do it. So all new ideas come out of existing ideas.
However, not all idea combinations are created equal. Combine the notion of a spider with a web and most people will say, "This is no big deal. We have seen this before, they are very closely connected. But suppose I was going to combine the concept of a spider with something like goat milk? Well if there is a connection here, it might be quite innovative and in fact a company in Canada did just that. They took a gene from the golden orb spider and they inserted that gene into a herd of goats. They milked the goat and took the milk from this goat and they spun silk out of it. The silk of the spider is about five times stronger than steel. The thread consistency of the goats' milk is also incredibly strong and that created artificial tendons and strong fishing lines and other types of products. The bottom line is that existing ideas were combined to create new ideas and that is the power of diverse teams.
Diverse teams look at the exact same thing and have different associations from those things. Take the concept of the color yellow. The color yellow in the US may be associated with cowardice, whereas in Thailand or in Malaysia you may associate that with royalty and in Venezuela you may associate it with lucky underwear. This is of course from an ad campaign but it proves an important point, that the most basic of things like the color yellow have completely different associations with different people from different backgrounds.
Now a company that leverages that can have a huge advantage in innovation. For example, L'Oreal, a couple of years ago, acquired two hair care product plants in the U.S. - Softsheen and Carson. These two brands created hair care products for African-Americans. L'Oreal is the world's largest cosmetics company; it's a French company. They acquired these two brands and combined them into one, SoftSheen Carson, and then they opened an R&D institute in Chicago to understand the very specifics of African-origin hair, which is different from Caucasian and Hispanic and Asian hair. Now they are selling this product all over the world. The question is, 'Why would they do such a thing?' The reason is because there are more than one billion people on earth with African origin hair.
DC: From an HR perspective, what kind of team would it take to come up with this? I ask because that's exactly the kind of thing HR people are meant to be the experts in, being able to say what kind of competencies or skills or background do we need to have effective teams? Diversity is also a word that strays into the HR domain and it's so interesting to see the way this ties right into innovation and right into these hot business issues.
FJ: I call this one of the lowest hanging fruits that a company can actually pursue and I want to show a couple of examples of why that is specifically tied to what HR professionals can do within a company to drive innovation. I talk about staffing for innovation, which is really staffing for diversity, and also talk about the leverage of diversity that you already have in the company. Many companies seem to have affinity or networking groups, and in company after company I have encouraged them to leverage those diverse groups to develop specific ideas and have an enormous impact on the company.
When you talk to people about innovative teams, and you look into the process that goes through it, you find diversity is at the heart of it. It's interesting that you mention this whole HR piece. When I speak to people in HR about how diversity drives innovation, they are fascinated by this aspect of diversity, it is considered to be completely separate from what they are doing.
The second side to innovation is that innovative teams generate and execute more ideas and diverse teams generate far more ideas. The number of ideas is the factor with the strongest correlation to innovative success, no matter what category or how you look at it. Research has clearly shown it's the number of ideas that you generate and try to make happen. This is also true when you talk about lots of different product launches or prototypes.
That is true whether you work for a car company that comes out with a few models every year or a consumer products company. The car companies prototype these models over and over again through computer simulations and clay models and so on. Consumer product companies like Proctor and Gamble can create many different types of products every year. Corning, the glass company, comes out with over 4,000 products every year but only a couple of those reach the market. Prince, the artist, has over 1,000 songs stored in protected vaults and Richard Branson has a set of over 250 companies. Here is the intriguing fact, diverse teams, by their very composition, come up with more ideas than homogenous teams do.
Richard Branson is the founder of Virgin Records. Virgin Records in the first five years lost money on every single artist they signed except for the first one, and that was a guy named Michael Oldfield and was an album called "Tubular Bells. It was a unique album; it was a unique mix of rock music and classical music. It hit the #1 spot in the UK and sat there for 16 straight months.
Let's look at is the intersection of rock music and classical music compared to these individual segments on their own. Imagine that you were a rock musician in the early 70's. Since rock music is a pretty rigid form of music, you had a limited number of instruments that you could use. You had to have a guitar, drum set and a bass, a limited number of structures; the song length shouldn't be more than three minutes, and lead vocals which you could sing in all kinds of different waysthis all leads to a certain number of possible combinations. Then of course for a classical composer, you have a different set of possibilities.
There are far more instruments to choose from but fewer choices in vocals where we may have none or a choir. Now here is the interesting thing. Imagine you have a rock musician at one end of the room and imagine that you have a classical musician in the other end of the room. In their own domains they each have perhaps 2,400 possible ideas but if they combine the two fields of music they would come up with an exponential increase in the number of ideas, in this case close to six million ideas. In other words, a diverse team with different perspectives can produce far, far more ideas and you just have a huge impact on the success levels.
The head of Quantum Labs, which is a science lab, has the following hiring rule: every single new person has to have a different background from every single existing person already in the lab. Today there are almost 30 people in the lab, representing 13 countries, 4 continents, and 13 disciplines. This is one of the most effective idea generating labs in the country.
Now let me also give you another quick example from L'Oreal. They acquired a company called Maybelline in 1996; which was headquartered in Memphis, Tennessee and at the time was a very homogenous company. They had good presence in the U.S. but not in the rest of the world. Less than five years later, L'Oreal had made them into the #1 brand in the world, in almost 30 countries. The question of course is, 'How did they accomplish this?' The CEO of L'Oreal and the people heading up this brand will tell you that it was diverse teams that did it. After they acquired the brand, they hired a guy named Ketan Patel, an Indian who hired people from all over the world, and people from other industries, other cosmetics firms.
They moved the company's headquarters to New York. Then he looked at the market, trying to find a different way of doing something. In Japan, where not a single western cosmetics company had managed to break through, they managed to do so by trying to understand the market. It's very important to have curved eyelashes in Japan for executive women, so somebody in Italy said instead of a straight brush wouldn't it be interesting if we had a curved mascara brush to apply the mascara that would curve the eyelashes? The people in Japan realized that these two concepts are pretty far apart, but they tried it, they tried the curved mascara brush, and they attribute that mascara brush with then becoming the #1 brand in two years in Japan. It was a direct result of bringing together diverse teams.
The second example I want to give is Frito Lay, which is a unit within Pepsico. Frito Lay wanted to come up with some new products as well. They asked the networking groups including the Hispanic American one to help them come up with new products. They came up with the idea of the Cool Guacamole chip. They tried the Guacomole chip and made $100 million in the first year. Interestingly enough, this is the point I definitely want to emphasize, this is not a case of a company looking at different market segments and saying, "This segment is growing rapidly. Let's try to come up with products for this segment. It was about a true combination of unique ideas.
DC: Is there any downside to having these diverse teams?
FJ: Yes, in the short term there may be. It usually will take a little bit longer to get that team up and running compared to homogenous teams. It takes a little bit longer but what you get is so much better it is always worth it. It helps if people have been in diverse teams before. It requires tolerance and respect.
Sometimes all you are looking for is execution, that's it. Then you might think you don't want diversity. But any given process will have to change at some point.
There are a couple of different quick pointers. One is that very often you put together a diverse team, but there will be a few people who contribute most of ideas on that team. If they are homogenous then you really have a homogenous team not a diverse one. So what is needed is to be able to make sure all ideas are brought out on the table, even if your team leaders find them kind of crazy initially.
The other thing is the diverse team has to be very open to new ideas; you have to explore ideas that don't seem to make much sense initially. Someone suggests you acquire these two brands to sell in India. Well we can explore that. You have to be willing to assess those ideas. You also have to have confidence, because the diverse team can keep on talking about ideas for a long period of time. Somebody has to stand up at some point and say it's time to get rolling. So intriguingly a leader for a diverse team has to be open and very tolerant for discussion of new ideas but at the same time, know that it's now time to stop the talk and start acting or proceeding.
People who have been in diverse teams before will have a better chance of intuitively understanding this. The people who have experienced diversity have a better shot at managing for it.
Let me give you another example of leveraging diversity. This comes from Europe. It's from Volvo and what we have is a concept car, which is a sort of car that is developed in order to come up with lots and lots of different ideas, which can then be introduced in ordinary car lineups. This concept car is the first car in the world that has been developed by women. Women on average do not participate in opening the hood of the carneither do a lot of guys, because usually it indicates trouble. In fact, the main reason for opening the hood of a car is to put in washer fluid. So by supplying a hatch by the side of a car to put in washer fluid you rarely have to open the hood of the car. It's just like you don't open the hood when you are putting in gas.
That may look like a completely obvious innovation after the fact, but nobody thought about it beforehand. It was a genuinely good idea and it came about through the Medici Effect, diversity and intersections. So this is once again an example of using the diversity that already exists in a company to create some new ideas.
Intriguingly when I spoke to some folks at another heavy industrial company in Europe, there was one person at a unit who told me that it was the first time, two years ago, that they hired a woman in this unit. It was the best thing that ever happened; they are very excited about it. Simply bringing this new perspective had really revitalized that unit because there were so many new ideas coming in because of it.
So I asked him, "How long have you been trying to hire women for this unit? and he said, "For year and years and years but the trouble was there are not any really qualified women that want to get into this heavy industry. I was just waiting for the right woman to come by.
But someone said when they wanted to enter Germany as a new market; they didn't just sit back and wait for customers to come by. They aggressively went out to find them. They how have instituted all kinds of different recruiting and retention types, with the specific purpose to increase the diversity and also to use that diversity to find new ideas within the unit, which is very, very exciting.
Let me talk about a global approach. The way a western company thinks about selling in India or China is to look at the product line up and then select the products that they think have the best shot at that demographic. But of course companies in China do not think of it that way. They just think of it as 'how can we conquer Asian mass markets?' To do that you ultimately have got to have a new business model. Cummins is a company that develops electric generators and the way this company works is in the US they sell an electric generator, and when it breaks down, which it inevitably does, they send out a repair guy. That was the business model for Cummins and its competitors in the US.
The real revenue comes from the maintenance networks. Many people love this model. It's used for cars; it's used for copiers in offices, for all kinds of things. You sell the parts fairly inexpensively and then you charge for the service of it. But in China the infrastructure is just not good enough for a maintenance network. What they have to do instead is to design a generator that didn't break down. By looking at how business had to be done in China, they were able to come up with some brilliant new ideas that they then could apply anywhere in the world.
What I see over and over again is companies that think they are global are leverage diversity but are really not. What they really are is a company that has a headquarter in the U.S. and it turns out ideas from the headquarters that are sent out of their global offices. They are unable to really process anything that comes in from the offices around the world.
DC: Really it's a different way of thinking about diversity. So often we get caught up in having to meet legislative targets or that sort of reasoning and it's exciting to see it as being something one does because that is how we are going to win in this exciting global world.
FJ: The truth is people talk about how the world is connected and so on, and it really is connected and in the most intriguing of ways. You have spiders connecting to goat milk. But the fact is that someone is making the connection. Why isn't that someone you?
