Man of String

Allee Effects and Small World Networks

It sometimes takes reading about a subject several times from different sources to pick up on something that should have been evident the very first time but somehow wasn’t.  Or at least that’s how it is with me.  For instance, I recently read Clay Shirky’s book “Here Comes Everybody” and was struck by his description of small world networks as being characterized by a balance of small, densely connected groups and large, sparsely connected groups.  Now, I’d previously read several other books about aspects of network theory and had ooh’ed and aah’ed at the examples and explanations of the 6 degree of separation phenomenon, synchronicity and other network effects, but this unexpected component of the small world network structure, first described in 1998 by Duncan Watts (Six Degrees) and Steve Strogatz (Sync), had never really taken hold in my brain until now.

And I think maybe the reason for my sudden but belated awareness is another phenomenon that I stumbled upon a few years back as I was researching success and failure in “founder”, or start-up, groups.

Warder Clyde Allee, an ecologist and zoologist working in the first half of the twentieth century, was particularly interested in how animal groups form and survive.  In the classical model of population dynamics, over-crowding typically has a negative effect on group growth.  What Allee discovered was that under-crowding can also be a problem.  Below some critical density, small populations – as founder groups typically are - can be at increased risk of group decline and even extinction due to effects such as:

- Inability to find mates during the mating season;

- Reduction in foraging efficiency (and other activities) in the absence of cooperating hunters;

- Increased vulnerability to predators when group defensive behaviours (e.g. herding, flocking, schooling) become ineffective at low prey numbers

- Failure to attract pollinators when there are few conspecifics nearby to create an appealing place to forage

Achieving density is thus a prerequisite to population growth.  But only up to a point.  At some threshold the problem of under-crowding, also known as positive density dependence, (or Allee effects, after their discoverer) suddenly gives way to the problem of over-crowding, or negative density dependence (the classical model).

In other words, it’s important for small populations to get to critical density, but as they grow they need to spread out.  And maybe something like this is what’s happening in small world networks.  Small groups thrive at high densities (positive density dependence) and perhaps even need that density to retain group coherence or identity and thus survival.  But large groups - where individuals begin to compete with one another - thrive at lower densities (negative density dependence).  And I’m guessing that this is a recurring, dynamic pattern.  New groups will form over time and only those that develop dense connections will persist. But as they grow they will tend to dissipate, leaving the leaders and fast followers with new groups to found and more Allee effects to overcome. 

Do electric cars dream of invasive species?

In writing the previous post on Tesla Motors and equivalence it dawned on me that the company bears all the hallmarks of an invasive species.  I suppose it should have been obvious except for the fact that the company has not yet had widespread success and it could well be argued that Tesla will disappear as soon as the Chrysler Volt and other electric/hybrid offerings from the mainstream automotive companies move into full production mode.  Additionally, internal combustion engine (ICE) technology offers a longer “between-charge” range than electric vehicles (EVs) and has an enormous infrastructure built up to support it.  And if you consider that EVs have actually been around longer than ICE and yet have consistently failed to compete successfully against it, scenarios in which the big and the established beat the small and the new seem quite plausible.  So what are the chances then that Tesla Motors will become a large scale success and be a leader in a radical transformation in both the automotive and energy industries?

I’m going to argue, as you might expect by now, that the more characteristics of invasive species an organization exhibits, the more likely it is to be a disruptive innovator.  So let’s review which of these characteristics, these invasion principles, are exhibited by Tesla Motors.  First, a refresher list of the principles:

Start, act and think small

Take an outsider view

Speed up your cycles to get to resources earlier

Embrace disturbed environments and tumultuous times

Think hybrid

Exploit underutilized resources

Play nicely with other invaders

Know when to attack (grow fast, spread fast)

Be a serial invader

Which of these then apply to Tesla?  Well, clearly #s 1, 2 and 3 do.  In the August 2009 edition of The New Yorker, General Motors’ then Vice Chairman Robert Lutz was quoted as saying, "All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us -- and boom (#3), along comes Tesla. So I said, 'How come some tiny little California startup (#1), run by guys who know nothing about the car business (#2), can do this, and we can't?'”

#4 doesn’t seem to apply as much, except that the increases in oil prices over the last couple of years and the US government’s apparent desire to reduce dependency on foreign oil in the long run creates unstable conditions for the production and consumption of energy which should play to Tesla’s advantage.  It should be noted, however, that Tesla started in very different conditions which were not nearly as conducive to EVs.

#5 is where Tesla detractors might have their strongest argument.  It’s well known that consumers are, in practice, unwilling to make performance trade-offs for a “common good” like energy conservation or reduced emissions.  That means they may well choose, at least initially, a vehicle that gives them a between-charge range comparable to their existing ICE on a tank of gas (or a large part thereof).  In that respect at least plug-in hybrids have the advantage over a pure battery play like Tesla’s and may therefore win out.

Tesla clearly follows principles #6 and #7.  Elon Musk runs not just Tesla Motors but also SolarCity, and the two companies are, naturally enough, partners.  This means that Tesla customers can use solar power, harnessed by SolarCity’s products, to charge their EV, whether that’s a Roadster or one of the forthcoming lower cost models.

But the link to other innovators doesn’t stop there.  From Wired, August 2006: “The central concept of Tesla Motors, founded in July 2003, is that there is no need to reinvent the battery, particularly for a product with a small initial market. Eberhard (Tesla’s founder) simply adopted the lithium-ion technology used in laptops and harnessed the momentum of the computer industry. Let Dell, HP, and the rest of the sprawling PC business, with their billions of R&D dollars, do the hard work of extending battery life and driving down prices. He’d piggyback on their innovations.”

#8 is another question.  Is Tesla growing or spreading quickly enough?  Will 15 Tesla stores (currently) across the nation be enough to do enough to dispel the image of Tesla as a Silicon Valley company with little or no relevance to the “average” car buyer?  It’s difficult to know and perhaps still too soon to be relevant.  The company has demonstrated the efficacy of the EV at the luxury price point but not yet at the Prius one (approx. $22,000 - $32,000).  Evidence from pre-orders for the S Model and for the mainstream competitors may give Musk the information he needs, or perhaps he can turn to the Tesla investors over at Google for data on relevant search activity over time.  Incidentally, Google Trends currently reports a modest increase in search volume over time and a more noticeable increase in news coverage since the beginning of 2008 but nothing to suggest a critical mass of interest.  Perhaps, therefore, too soon for the invasive expansion.

#9 may be the deciding factor.  All other things being equal, the best predictor of a species’ invasiveness is whether it has been invasive before.  In this case Elon Musk, Tesla’s CEO, co-founder and major investor, can comfortably tick that box as founder of Zip2 and PayPal, with other invasions currently underway at SpaceX and SolarCity.

So, Tesla rates a 6 out of 9 just on number of principles applied, although the existence of serious competition from Toyota and GM (see #5 above) is an important factor in deciding its invasiveness.  My final guess is that EV technology will be the long term winner over ICE, causing significant transformations in the automotive and energy industries.  As for the company itself, I think it may benefit from an Apple halo effect; Tesla is way cooler than GM, and its devices are way cooler too.  Expect an invasion in the next year or two.

Why is digital technology still so disruptive?

Why do some companies and even whole industries fail so miserably to recognize the opportunities and threats of digital technology?  Why, for instance, didn’t Borders or Tower Records create Amazon.com?  Why didn’t the UK’s Exchange & Mart, a print-based marketplace for people to sell their used stuff to each other since 1868, create eBay instead of being buried by it?  Why did Smith Corona give up on its fledgling PC unit after only a year and dissolve into nothingness less than 5 years later? Why is Blockbuster losing out to Netflix and Redbox? And why are the textbook publishers still in the infancy of digital content development?

This is not a new question of course.  According to one school of thought, the answer is inertia; it’s just really difficult to stop doing the things that have made you successful in the past.  According to another, it’s management incompetence that’s to blame.  And I understand both points of view but have a sense that something else is playing a part, something that, for now at least, I’m calling equivalence.

When senior decision makers within the corporate world think about digital technology, they’re mostly frustrated by the cost of IT in their organization, or by the loss of their children to the world of texting, social networks and first person shooters, or by their own inability to get their laptop to find a connection.  What they’re assuredly not thinking about is two of the most fundamental aspects of computation and communication; the digitization of the analog stream and the quantization of the digital stream.  And why should they?  Well, I think there are two reasons why:

Firstly, Digitization gives us equivalence in production and consumption.  Digitization makes every single piece and type of content equivalent to every other piece and type.  All content in a digital world is a combination of 1s and 0s.  A printed book that used to look and feel very different to a song, or a movie, or an X-ray, or a financial transaction, is now, in its digital form, essentially identical to them.  They are equivalent.  And the same goes for meta-content, or content about content.  Even those pieces of the world, like cars or chairs or computers themselves, that remain obstinately analog and resist digitization can still be described digitally and therefore manipulated and traded the same as any natively digital entity.

Digitization, therefore, means that any piece of content can, in most regards at least, be produced and/or consumed by the exact same types of device, including PCs, smart phones, tablets, game consoles etc., running the same or similar applications.  And when the means of production for different types of content become the same it means that anyone who produces one can produce the other.  Book publishing, for instance, is no longer confined to book publishers.

Secondly, quantization gives us equivalence in distribution. Quantization is a process of chunking up content into discrete, standard units and is responsible for the effective and low cost worldwide distribution of both digital content (via packets on the internet) and physical content ( e.g. via envelopes on mail networks and containers on shipping networks).  Quantization of the digital enables all these different yet equivalent pieces of content to be advertised, distributed, bought and sold over the exact same distribution infrastructure, namely the internet.  This means that any business that exists as a middleperson between producer and consumer, including retailers, dealerships, distributors, sales representatives, agents and so on, is increasingly interchangeable with any other.

So, digitization creates equivalences across the entire transactional domain of production, exchange and consumption.  But it is important to note that digitization is only the most recent form of equivalence.  Many of the world’s greatest innovations have been the introduction and development of systems of equivalence, including spoken language, writing, numbers, money, and quantized networks including mail, package and container systems.  And we still have many to come, including the digitization (or equivalent!) of taste, smell and touch experiences, as well as of our genetic code and of molecules, and the quantization of energy.

I propose then three laws of equivalence:

First, any product or service that can be digitized, or made equivalent to another product or service, will be.  And if not by you, then by someone else;

Second, any product or service that can be quantized for effective distribution will be.  And if not by you, then by someone else;

Third, any product or service that cannot be made equivalent will most likely be made redundant by another that is, through the forces of scientific and technologic advance and/or modularization.

And if not by you…

Do disruptive innovators lack social skills?

Not to keep you guessing for too long here, the answer is “yes”, if recent research into the invasive mosquitofish is anything to go by.  A paper by Julien Cote et al. suggests that dispersers – those individuals that leave their group to set up home elsewhere – tend to have a different personality type than the average from a source population.  In particular, it is the least socially tolerant individuals that are most likely to disperse from high density populations, and it would seem that they may also to do this cyclically.  In other words, asocial individuals are more likely than the average to leave home and colonize new habitats, but if/when those new colonies become too dense they’ll up and leave those too.  If this is true it would help explain the propagation wave that typifies invasion spread.

It turns out that other studies on common lizards and on humans report similar findings; “that asocial individuals are more likely to disperse, especially when population density is high”.

So what does this have to do with disruptive innovation?  As is probably clear by now, I view invasive species as models of disruptive innovation in nature and believe that we can apply the characteristics and behaviours of invasive species to our own efforts to innovate in business.  Dispersal in this sense is not, therefore, literally about a business invasion of another geographic region, although that is often vital to growth, but more generally about a mindset that looks for opportunities outside the heavily contested norms of any given corporation or industry. I have already discussed in a previous post, albeit briefly, the advantages of thinking or acting like an outsider.  Here I am suggesting that there may be a personality type which may be more likely to think or act that way “naturally”.

Within the corporate world, however, this personality type is often explicitly weeded out by the recruiting process under the label of “not a team player”.  And for the most part this probably makes sense since at least 90% of the energies of an organization should be focused on the efficient operation of its core function.  But that still leaves a small percentage that should be focused on what comes next.  And the two jobs are almost completely different.  As explained by O’Reilly and Tushman in their paper “The Ambidextrous Organization”, they require very different strategies, structures, processes, competencies and cultures from one another.

I would go further and suggest that at least some the people within an organization who are tasked with disruptive or transformative innovation should have different skill sets and different personalities too.  But as the research itself shows, these people tend to flourish in smaller, less dense populations, so it makes sense to follow another of the invasion theory prescriptions which is to act small.

Which means that if you have the responsibility of building a disruptive innovation capability within an established organization, resist the temptation to build big to signify the importance of your mission.  Instead, build as small a team as you can.  Even with executive-level support for innovation, other units within your company will view your work as a waste of time, money and resources, and as an irritating distraction from the day to day business priorities.  Being small achieves four important objectives in the early days: i) it will make your activities more inconspicuous and therefore less likely to attract the corporate antibodies; ii) it will make you need less support and fewer resources and therefore allow you to survive longer on whatever you’re given;  iii) it will make you create less infrastructure and therefore give you greater adaptability; and iv) it will make it easier for you to align your efforts around a single vision and goal and around a small number of cohesive ideas.

And don’t forget to hire at least one “disperser”.  They may not fit in very well.  But that’s the whole point.

Outsiders

“Almost always the men who achieve these fundamental inventions of a new paradigm have been either very young or very new to the field whose paradigm they change… these are the men who, being little committed by prior practice to the traditional rules of normal science, are particularly likely to see that those rules no longer define a playable game and to conceive another set that can replace them.” (Thomas Kuhn, “The Structure of Scientific Revolutions”. Chapter 8, The Response to Crisis).

Invasive species in nature are, literally, outsiders.  They travel from their native habitats, often hitching a lift from our global transportation, trade and tourism networks, to arrive in an unfamiliar place possibly thousands of miles from home.  In the USA alone, killer bees from Africa via Brazil, kudzu from Japan, hydrilla from China, the gypsy moth from Europe, argentine ants from, well, Argentina are among hundreds of alien species that have become invasive.  Of course the traffic is not all one way.  The rosy wolf snail, native to Florida, is now found in nearly all Pacific and Indian Ocean island systems and is classified as one of the world’s top 100 invasive species.

Now, being an outsider is as tough in nature as it is in human societies.  In fact it is estimated that only about one in a thousand alien species become invasive.  And that’s because outsiders face significant obstacles all along the way, including:

a long, arduous journey often experienced under inhospitable conditions;

an unfamiliar and potentially hostile climate in their new “home”;

unfamiliar and potentially poisonous food and energy sources;

new predators, competitors, parasites and diseases (eventually).

But they also have three major advantages over the natives whose ecosystems they invade, if they are bold and hardy enough to exploit them:

Firstly, they have no co-evolved relationships or affinities with any of the native species and thus have no commitment to the status quo.  They are not bound into the complex web of interactions that lead, over time, to a dynamic but stable ecosystem.

Secondly, when invasive species leave their native land they also usually also leave behind their own predators, parasites, competitors and disease vectors.  For a while then they often have no one to protect themselves from and can focus all their energies on offensive, rather than defensive, strategies.

Thirdly, the natives often have no defenses against them or the diseases they carry with them.  It’s a reasonable enough assumption that you can’t defend against something of which you have no prior experience, knowledge, or immunity, and in fact experiments have shown that fear of predators in prey animals is a learned behaviour, not an innate one.

In business, as well as in other human pursuits, these advantages translate into “outsider” prescriptions for innovators:

Challenge the status quo and orthodoxies that exist in your company and industry to find its blind-spots.  Often the greatest opportunities for innovation exist precisely in those areas where no one’s looking;

Refocus on competing with the new rather than protecting the old.  No one’s job should be protection.  Everyone’s job should be improvement, addition or replacement;

Be informed and be prepared.  The chances are that the greatest threat to your long term success will come not from the usual suspects but from something small and not very threatening.  Yet.

About all of which, more to come…