If I had to boil Rob Austin’s keynote presentation on “Learning from Innovators Around the World” down to a single sentence, it would be this: while IT has had a long (and generally successful) track record at improving profitability by cutting costs, and while it has often found some innovative ways to cut costs (e.g., through process innovation), IT must now start enabling and supporting innovation to help companies improve profits by increasing revenues.

On the surface, this doesn’t sound like a very profound idea, though many companies are determined to continue using IT to make everything more automated and more efficient, so they can become the low-cost “Walmart” of their industry. But to show us what a different world we now live in, Rob started his presentation with a short case-study presentation of a Danish company called Vipp, which makes “designer trash cans” that sell for anywhere from $250 (for the small one) to $500 (for the large, kitchen-sized model). I have to admit that I’ve never heard of such things, though they’ve been around for a while, and got some local attention as far back as 2004, in a Slate article entitled “Wasteland: Which Garbage Cans Aren’t Garbage?” The point is that Vipp is not trying to sell its product based on its functional capabilities; if it were, it wouldn’t be able to charge more than $50-100 for the product, and its ability to improve profits by cost-cutting efficiencies would be fairly constrained. Instead, Vipp has somehow found a way to transform trash cans into a fashion statement, or an art object.

I have to admit that when Rob first told the story, my first reaction was, “This is a fad, like Pet Rocks (note to self: Gen-X and Gen-Y has didn’t experience Pet Rocks, might as well tell them about hula hoops or the invention of electricity or steam engines). It won’t last more than a month or two.” But the Slate article made the obvious point that it’s been going on for a few years now. And as Rob pointed out, it’s just a variation on another, somewhat more familiar success story in the U.S.: we could buy a cup of coffee in a corner deli for 50 cents, and the deli owner could look for ways to improve his profits by using cheaper paper cups, cheaper coffee beans, or a more efficient process for brewing the coffee. But instead, we’ve been enticed into spending three, four, or five dollars for the “experience” of acquiring a grande, mocha double-expresso latte from Starbucks. Starbucks is looking for innovative ways to persuade us to spend more money for what is — at the end of the day — a cup of coffee, in order to raise their revenues and generate more profits.

Rob argues that these are not isolated examples, nor do they represent an “optional” strategy for companies in the North American/Western Europe advanced countries. Because of the global economy and the success of global outsourcing, it’s becoming more and more difficult to achieve success through the Walmart cost-cutting strategy. Everyone in the world can get the same cheap raw materials; everyone in the world can use information technology to optimize their supply chains and day-to-day business practices. But the companies in China and India have a built-in advantage that the advanced countries will never be able to match: labor costs that are as much as ten times cheaper.

Of course, this is a very familiar story by now; Rob reminded us of the insurance company CIO who said his basic strategy for the past few years had been described as: “”Chunk it, routineize, digitize it, automate it, and send it offshore.” And it’s not just routine, transaction-oriented work that’s begin sent offshore; now it’s R&D work, too. (And one reason for this, as Rob pointed out, is that our post-9/11 immigration policies have made it more and more difficult to bring foreign students and researchers into the U.S.; companies are finding that it’s not only cheaper, but also easier, to find the R&D talent they need by opening R&D centers in Bangalore, Shanghai, and various other offshore locations.) Rob reminded us — with a reference to a recent video called “Shift Happens,” with I blogged about a couple weeks ago — that there are a lot more Indians and Chinese than there are Americans or French or German engineers and researchers; as the video noted, there are more “honors students” in China than there are all students in the U.S.

He then makes another interesting point: he says some companies are beginning to move their R&D centers offshore, not because it’s cheaper, but because companies aren’t sure they’ll be able to get access to offshore R&D talent and bring them into the U.S. (because of H1B visa restrictions, etc.). And he reminds us that innovation work doesn’t really have to take place in North America: because of the size of their populations, there are more “honors students” in China than there are of all students in North America.

So … what does this have to do with IT? Rob starts with a quote from a CIO of an insurance company: “Chunk it, routineize, digitize it, automated it, and send it offshore.” Apparently this insurance company had discovered that there were only two business processes that could not be sent offshore. In any case, the first four items in this CIO’s comment have been the primary rationale, or business justification, for IT during the past few decades. But to the extent that we’ve succeeded, it means that more and more companies will send their work offshore. And that means that the traditional strategy for IT departments is basically a form of suicide: to the extent that they succeed, they simply put themselves out of business.

Okay, so what should we do about it? Rob suggests that companies in general, and IT departments in particular, should be focusing on innovation — and processes/strategies for innovation. Not “innovation strategies for reducing costs,” but rather “innovation strategies for creating new products, creating new markets, increasing out revenues so we can justify our higher salaries.” How can we make ourselves more like Vipp, and invent designer trash cans for which people will want to pay premium prices?

(Seems to me there’s a metaphysical question here: is it really “good” for humanity to spend outrageous amounts of money for a trash can? Is this what I really want to be doing with my life, and is this what I really want to encourage my children to be doing? Well, let’s save that discussion for another time.)

Anyway: if “industrial making” (to use Rob’s term) is what we do when we know where we are going, and know what we want to do, then “innovative making” is what we do when we’re not quite sure. But for “innovative making” to work, there are some important preconditions:

• Iteration must be cheap and rapid. It must be inexpensive to try something new, and inexpensive to fail. The “reconfiguration cost” — what it costs to rearrange the product equipment and process to create a novel outcome — must be low. And the “exploration cost” — the cost that occurs if a novel outcome doesn’t work, or causes harm — must be small.
• There must be a high demand for iteration. This typically occurs is you’re tyring to make something new, or tyring to build something to satisfy a moving target, or trying to discover what the requirements are, vbecause the end-user cannot easily articulate his/her needs (which happens often in IT)

Rob notes that these conditions typically do not hold, for examle, when moving a Broadway musical to a new geographical location, because the priorities are totally different than a new Broadway production. On the other hand, an agile software development project generally does have the necessary preconditions.

Okay, so if innovation is good, how can IT and technology support it? Rob argues that one of the main things that IT can do is drive down the cost of automation; an interesting example is the use of computer simulations of automobile crashes, which currently cost major automobile manufacturers over $100K per crash. But the more important point is that automation (or computer simulations, or other variations on this theme) can make it easier an cheaper to “try new things” — in order to stumble upon unexpected surprises. Thus, support of innovation, says Rob, should be IT’s “new trick.” IT can be — or could be — the most important enable of innovation.

The reason we even think about iteration N+1 in the development of an new product or system is that we (or someone else) has determined that iteration N has not worked as was intended — i.e., it was a “failure.” But Rob explored that word, “failure,” especially with artists (sculptors, painters, etc.) who had a very different perspective. Sometimes a “failure” can be combined with something else to make a success; sometime, even if the totality is a failure, some of the parts were successful, and can be salvaged. Most important, the “failure” can often be though of as a “learning event,” which has an entirely different connotation than the negative interpretation typically associated with “failure.”

Rob also discussed the relevance of “customer feedback” in this new world. If you’re going to charge $250 for a trash-can, can you only give customers “what they need”? If you only ask people what they want, they’re likely to tell you about the things that are already on the market, and what kind of incremental improvements they’d like to make to such products. Rob showed us some video clips, in which several industrial designers argued you have to go beyond this and give customers something they can’t resist, something that will surprise and delight them so much, something they literally can’t resist, so that they’ll be happy to pay 10 times what they would pay for a “commodity” product. A designer in one of the clips emphasized that you have to feel a passion for what you are designing; that reminded me of an article I read in today’s issue of USA Today, in which Microsoft’s Steve Ballmer said that he would rather deploy Windows software (which most customers don’t feel passionately about, to say the least) on 60% of the world’s cell phones than feel passionately about the upcoming iPhone, which may only be installed on 5% of the world’s cell phones.

The final issue that Rob and his colleague discussed with interviewees (most of whom were artists far removed from the IT field) had do with the familiar notion of “reuse”: the interesting point is that most artists use the term “collecting” rather than “reuse.” Artists keep sketches, drawings, journals, and digital photos that they can search through later, for inspiration, rathe than for what software folks think of as “reuse.” Unlike the “reuse libraries,” which tend to be organized for quick retrieval, artists feel that if the retrieval system is too good, it could prevent you from making serendipitous associations and connections, which they find tremendously valuable.

There was a simple, but important variation on this idea, which I found useful: sometimes we come up with an idea (a design, a piece of code, an idea for a new software component, or whatever), but the isn’t right: for whatever reason, we know that if introduce/propose/suggest it now, it will be dismissed and rejected. So we need to tuck it away, for later “reuse,” so that we can find it when its time has come.

There was lots more to Rob’s presentation; I’ve only hit the highlights. If you get a chance to listen to him in person, don’t miss it!