“How to Avoid Bad Investments in Good Ideas”

Theodore Kinni -Senior Editor, Books at strategy + business magazine:

In late 1999, while still the 800-lb gorilla in the video rental market, Blockbuster Video called in some outside help to address its biggest customer complaint: late fees. One of the calls was to Michael Schrage, then research associate at MIT Media Lab, whose book, Serious Play: How the World’s Best Companies Simulate to Innovate, had been recently published by Harvard Business School Press.

Schrage’s brief, as he explains it in his new book, The Innovator’s Hypothesis: How Cheap Experiments are Worth More Than Good Ideas (MIT Press, 2014), was simple: “Help Blockbuster transform late fees from a primary pain point into a marginal concern for the company and its customers.”

Half of Schrage’s new book is devoted to an innovation methodology called 5×5, that captures the benefits of experimentation. In the 5×5 approach, writes Schrage, “A minimum of 5 teams of 5 people each are given no more than 5 days to come up with a portfolio of 5 ‘business experiments’ that should take no longer than 5 weeks to run and cost no more than 5,000 euros to conduct. Each experiment should have a business case attached that explains how running the experiment gives tremendous insight into a possible savings of 5 million euros or a 5-million-euro growth opportunity for the firm.”

Schrage says that he’s been facilitating these 5×5 exercises in companies, under the auspices of MIT’s Sloan School of Management and the Moscow School of Management since 2009. The results: “There are always—without exception—at least three or four experiments that make top management sit up straight, their eyes widening (or narrowing, dependent on temperament), and incredulously ask, ‘We can do that!?’”

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