Opportunities, Risk in a Changing World

BOSTON (06/15/2000) - The irony of the personal computer revolution is that the PC itself didn't create the initial spark--it was the software spreadsheet.

When VisiCalc, the first low-cost spreadsheet software, appeared in 1979, it immediately appealed to Wall Street analysts who were sick and tired of recalculating spreadsheet after spreadsheet on paper. They cheerfully shelled out more than SU$2,500 apiece to buy VisiCalc and an Apple Computer Inc. II personal computer simply to be able to reduce the time and tedium associated with the manual approach. Within five years of the introduction of VisiCalc, more than 1 million software spreadsheets (and the computers needed to run them) were being sold annually. Within a decade, North America's financial culture had become a spreadsheet culture. Spreadsheets became the medium, the method, the tool and the language of all serious financial analysis.

But VisiCalc's brilliance transcended automation. The same technology that slashed hours from budget recalculations also enabled its users to build alternate spreadsheet realities cheaply. Indeed, low-cost spreadsheet software effectively launched the largest and most significant experiment in rapid prototyping and simulation in the history of business. The culture of finance had never seen a tool like it. Financial models that had once cost thousands of dollars to design and build now cost thousandths of a penny. The marginal cost of modifying complex spreadsheet models plummeted to near zero.

The spreadsheet is just one example of how the computational costs of prototyping products, simulating services and modeling business options are shrinking into insignificance. It's becoming ever easier, cheaper and faster to explore new ideas.

Prototypes like the spreadsheet engage the organization's thinking in the explicit. They externalize thought and spark conversation. A truly effective physical prototype of a personal computer or an automobile dashboard goes beyond the visual to appeal to the tactile and the kinesthetic. A genuinely creative spreadsheet simulation of a budget crisis evokes a "suspension of disbelief" that activates the adrenal glands along with the mind. The conversational competitions and design debates that these shared models ignite forge collaborative creativity and fire innovation.

Consequently, these models are not just tools for individual thought. They are inherently social tools and mechanisms for collaboration. Models and the human interactions and conversations that go on around them cannot be arbitrarily divorced. There is an ecological dynamic between interaction and iteration: New interactions lead to new iterations, and new iterations lead, in turn, to new interactions. Models turn out to be more about mediating interactions between people than mediating interaction between information.

That means translating the different languages of modeling in a company into one that everyone can understand. For example, finance-trained MBAs are typically far more comfortable manipulating spreadsheet simulations than are liberal-arts-trained salespeople. What kinds of conversations help bridge those gaps? Who manages them?

These questions become even more important as modeling within companies becomes more democratic and widespread. For example, engineering organizations have found that nonengineering managers and marketers want to play with CAD software to test their own product ideas and enhancements. Such "amateur CAD" signifies a growing democratization of design promoted by pervasive and accessible modeling technology. The changing nature of the modeling medium is forcing design professionals to manage the prototyping efforts of design amateurs. The declining cost and rising importance of prototyping is broadening the community of designers.

As this community continues to broaden, what should be the goal that unites it?

Many companies have latched onto speed-to-market as the primary payback for a fluid, rapid prototyping culture. But the mantra that speeding innovations to market is the key to competitiveness is dangerously misleading. High-tech companies and innovators who redesign themselves around that belief may be rapidly accelerating down the wrong side of the innovation speedway.

Speed-to-market might well be the most misunderstood management metric around.

It's true that most companies, from Boeing Co. and DaimerChrysler AG to Intel Corp. and Cisco Systems Inc., reap competitive advantage by slashing months from product-development cycles. But that's unlikely to be the real reason they're leaders in rapid innovation. The innovation metric that matters most in a hypercompetitive and volatile marketplace measures a different kind of speed; its focus is the needs of customers and clients rather than the speed of the innovator. The single variable that customers and clients care most about is their own mean-time-to-payback--the speed at which they believe they will get payback from purchasing a product or service.

The customer's perceived mean-time-to-payback, not the innovator's speed-to-market, effectively determines which innovations will dominate a market. The faster the payback, the better the chance that an innovation can create a meaningful market for itself. No other metric is more important.

Indeed, the business history of the digital innovation is a story of ever-accelerating mean-time-to-payback for people who purchase silicon and software. Dan Bricklin, cocreator of VisiCalc, attributes the success of the spreadsheet that launched the PC revolution to the financial analysts who believed that the system paid for itself in under a week.

Companies must develop internal metrics for their prototyping processes that reflect their particular customers' mean-time-to-payback expectations. For example, Swedish low-cost furniture maker Ikea calculates the manufacturing costs of its furniture prototypes down to a fraction of a krona: Cost-to-build is explicitly defined as Ikea's single most important criterion, because customers have come to expect prices to be as low as possible. Ikea customers have grown comfortable with assembling the furniture themselves as part of that bargain. At Steelcase's New York City prototyping showroom, customers' length of visit was identified as a telling gauge of their interest in Steelcase systems. World-class companies whose designs differentiate them are careful to use mission-critical measures in their prototyping processes.

Outside the marketplace itself, there is no better way to gain insight into individual and organizational behavior and to promote value-creating behavior than through the use of prototypes. They will become an ever more important investment in the quality of an organization's human capital and its innovation capacity. The smartest, most creative people in innovative organizations already spend more time interacting with more versions of models of their most important products and services than ever before. Tomorrow, they will spend even more time. But will that time be spent more productively? How will they--and their investors--know?

How do you play with your business? Tell us at neweconomy@cio.com. This column is excerpted from Michael Schrage's book, Serious Play: How the World's Best Companies Simulate to Innovate (Harvard Business School Press, 2000).

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