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I think not only can they live together, they have to live together.
Because without the two of them you're gonna have some really
severe problems in any firm that's R&D intensive,
innovation-based, however you wanna put it.
So I started the session this morning with two claims.
The first claim is completely uncontroversial, so we didn't
spend anymore time on it, which is simply that innovation is required at a pretty
rapid rate these days in all high-tech firms and many other firms.
The second claim is more provocative, which is that most new ideas are bad.
And that's actually empirically supported in
virtually every study of R&D or innovation that I'm aware of.
So if you look, for example, at the product design for
Mideo right down here in downtown Palo Alto.
They come up with thousands,
literally thousands of product design ideas every year.
Only a handful, I'm talking a few dozen, make it to market.
And the philosophy of that firm is that
they realize that most new product designs are flawed.
I mean, bad is a strong word and I use it to be provocative, but
most new product designs are flawed in some serious way.
And as the philosopher Karl Popper said a long time ago about scientific theories,
the idea behind the scientific methods of testing
is to kill off bad ideas before they kill us off.
And so on the one hand, claim one, we need innovation.
Claim two, most new ideas are actually bad.
So how do you combine them?
Because you've got to combine them.
And the reason you've got to combine them is because entrepreneurs, in order to
be effective, must worry about two kinds of error, not just one kind of error.
You mentioned one.
The danger of criticism killing off
creativity points to type one errors,
which is essentially not generating or
not taking up good new ideas.
Which would be breakthroughs, or at least substantial improvements,
either in products or processes that firms are involved in.
So that's the one.
Since we're at Stanford University and we're right near Silicon Valley, and
a lot of our students want to be entrepreneurs, have been entrepreneurs,
want to continue to be entrepreneurs, that's the one we tend to focus on.
That's the one that's pointed to by the concern about
criticism killing off creativity.
But there are also type two errors.
A type two error is the accepting of a bad idea.
And since entrepreneurship by definition involves uncertainty,
and innovation by definition involves uncertainty, you don't know.
I don't know.
Nobody knows whether the idea that's being kicked around the table is actually gonna
turn out to be fruitful, to create value.
We think it will, but we may not be very good judges of it,
especially if we're the ones who actually came up with the idea.
People are notoriously badly calibrated.
I mean everybody.
It's very tough to be tough-minded about your own ideas.
It's easier for me to be tough-minded about your ideas and for
you to be tough-minded about my ideas.
But my own ideas are like my mental children.
I have two real children whom I love and nourish and cherish, but
my mental ideas I love and nourish and cherish.
I have never met anybody, at the GSB or Stanford University or
any other elite university I've ever been to,
that actually likes their ideas being criticized.
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A couple of ideas came out of a meeting this morning.
One of them was an interesting kind of routine that
one of the firms uses, which is they have a rubric.
Which are simply a bunch of criteria or dimensions regarding
technical possibility, regarding market potential and
so on and so forth, that any new idea has to be scored on.
And as the entrepreneur
who does this explained to the rest of us, in his firm,
it seems that there's an understanding that this isn't a personal matter.
So I could've come up with a new idea, and
it's promising on four of the six dimensions, but you know what?
I didn't even think of dimensions five and six.
And it turns out my design is deficient on those.
And this is just something that happens to people when they're designing
new alternatives.
It's hard keeping a large set of evaluation criteria in mind.
And, as he put it literally, and
I'm quoting him, the designer in one case just forgot dimensions four and six.
And so, and
it turns out that the project idea's not very good on those two dimensions.
Now let's suppose that it's fixable on dimension four, so
it needs elaboration, which almost all new ideas require.
It needs elaboration and it turns out to be fixable.
But on dimension six, not so much.
Well, you see at this point, the process could have been shifted
away from the ego and personality of the proposer and
more toward the nature of the problem itself.
And when people's attention shifts to the nature of the problem
rather than to the person, then temperatures can cool down and
you can focus on what needs to be done.
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A good criticism will help the problem solver
figure out why they're stalled and what they can do about it.
A global criticism, this is no good, doesn't actually provide
directive feedback of well, okay, so what is it that I need to fix and
do you have any thoughts about how I might go about fixing it?
Now, of course, if I come up with a really terrible idea, in that context,
if it's a really terrible idea and the organization's under a lot of time
pressure, competitive pressure, it may be that frankly, what you just
gotta do is pull the plug on that idea, on the project associated with it.
And in that context,
good feedback is fairly blunt.
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Traditionally leaders have not tolerated being criticized.
Just to take us back a little bit historically, what we might call
the Enlightenment Project, which goes back to Europe in the 1700s.
What we call the Enlightenment Project has to
do with the creation of a new authority system in human institutions.
And the authority system is not democracy.
It's not ruled by the people, but it's rather ruled by evidence.
The appearance of the empirical sciences in the 1700s, and
taking off early in the 1800s, has to do with the creation and
human organization saying look, it doesn't matter how high up you are.
If you're making a claim about the world, this is gonna work,
this is not gonna work, it's an empirical claim, and you could be wrong.
We're all fallible.
That's the Enlightenment ethos.
We are all fallible.
I'll tell you an innovation story.
There was a doctor in Vienna in the mid-1800s named Semmelweis.
Semmelweis worked in an obstetrics ward in an important Viennese hospital.
And he didn't know anything about germs because the germ theory of disease,
Pasteur and Robert Koch in Germany, hadn't been invented yet.
20 years later it would come.
But Semmelweis was worried about pregnant women dying at terrible rates in his ward.
I don't know how he stumbled on this empirical method.
He stumbled on the idea of having his people, his doctors and residents and
interns, wash their hands in a chlorine solution between patients and,
importantly, between doing autopsies and patients.
You may find it hard to believe, but in those days, they would go from
an autopsy directly to the obstetrics ward without washing their hands.
Of course, their hands were just crawling with bacteria.
They were killing women.
So Semmelweis had them wash hands.
And if you look at an over time plot of the death rate in his ward,
it went like this.
Boom, boom, boom, boom, wash hands, [NOISE].
You didn't need a kind of metrics, you didn't need statistics,
it was just obvious from eyeballing the data.
Something about the chlorine solution was saving women's lives.
Well, but, you know, a lot of doctors in Vienna refused to accept the evidence.
And they were important doctors in positions of authority and
they didn't have to.
And Semmelweis died an embittered man.
It wasn't until Pasteur and Koch and so
forth really started to put the foundation under this.
And then finally those kinds of death rates started to go away.
But this is a long-term project.
You put your finger on such an important problem,
you can't expect it to be solved overnight.
Human beings are not comfortable
with the idea of saying the boss at the top is fallible too.
Everybody in the organization is fallible.
Everybody should be subject to the authority of evidence.
But when we compare, say, medical organizations we've got today or
high-tech firms we've got today, we've come a long way from the 1850s.
We have made lot of progress.
Smart leaders know how to create organizations that
protect themselves from themselves.
You do things like we all eat in the same cafeteria.
My office is not on the 15th floor and is huge and grand and everybody else.
We do things to minimize the status differences inside the organization
because it's those status differences that are constantly sending messages to people.
The CEO is nearly a god.
He's infallible.
He's Steve Jobs.
He can't make mistakes.
Yeah?
Hell, everybody makes mistakes.
And when you're a leader of an organization if
you don't create the kind of organization that will correct your errors,
you could lead your firm right over a cliff.
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