CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.
The Finnish mobile handset company Nokia, you probably know, is no longer in the mobile handset business. What you maybe don’t know is that how it reimagined itself after suffering defeat in the marketplace. When Risto Siilasmaa joined the company board, he made a rule that for any decision, alternatives had to be discussed. He calls that “informed imagination. “Nokia eventually decided to sell its handset business. Siilasmaa says that forced the company – freed the company, rather – to imagine a different future with a different business model. And today, Nokia is a global communications infrastructure provider.
Our guest today believes that imagination is something that more organizations can use to grow. And he’s here to explain how to encourage imaginative thinking in a company context.
Joining me now is Martin Reeves, a senior partner and managing director at Boston Consulting Group. He’s coauthor of the book “The Imagination Machine: How to Spark New Ideas and Create Your Company’s Future.” Martin, thanks for coming on the show.
MARTIN REEVES: My pleasure.
CURT NICKISCH: We all have an idea of what imagination is. What did you discover in your research that changed your mind about imagination?
MARTIN REEVES: Well, the paradox is that it’s a unique human skill that we all possess, so we do it. But like a lot of things that we do intuitively, we can’t necessarily describe accurately what it is. It’s not necessarily codified. When it’s not codified, it’s hard to harness. And for some reason, which is one of the mysteries of the book that we delved into, CEOs are generally frustrated with the ability of their organizations to reimagine themselves. They obviously see the necessity, but it’s a laborious and difficult process.
So this is a mixture of quant and qualitative research. Our quant research says that while the performance of large corporations may be attractive, that the growth potential tends to decline over time. So what we call the vitality, which is the potential for future growth declines by three percentage points for every doubling in the scale or size.
So essentially, the stereotype which is true on average, is that large corporations are great at exploiting yesterday’s products of innovation, but not necessarily renewing that legacy. And so that’s what we set out to understand.
CURT NICKISCH: Yeah, it is much easier to catch up, but you can never overtake, right, you can never be a leader if you keep doing that.
MARTIN REEVES: Yeah. In that sense, the times have changed. So going back to this idea that the fade rate of competitive advantage has increased massively. It actually made sense in the past that large companies were primarily focused on exploiting yesterday’s successful recipe because it was a reasonable assumption that the advantage in that recipe would persist over time, that’s no longer a reasonable assumption in most businesses. So, large corporations, if they are to possess need to be constantly reinventing themselves, and therefore, we do have to ask ourselves, what is this innate human tendency, and how can we practice it somewhat systematically? And then you get into some important misperceptions around imagination.
So we have this image of imagination, which I think is a hangover from the romantic era, that it’s an individual act, it’s a momentary act. It’s almost like a streak of divine inspiration, and it’s a magical property endowed to certain creative individuals like Steve Jobs.
CURT NICKISCH: The fallacy of the Eureka moment…
MARTIN REEVES: The eureka moment, belonging to special individuals. And along with that goes the notion that this probably can’t be managed. Now, of course, you can’t fully systematize what you haven’t yet imagined or realized, but in other walks of life, corporations don’t shy away from dealing with complex aspects of human affairs or a consumer psychology and an HR management. So why not be a little bit more systematic about imagination is the thought behind the book.
CURT NICKISCH: So, you put a structure around imagination, which is something that’s so organic and hard to contain. It starts with generation. Where do ideas come from?
MARTIN REEVES: So, I think it all starts with surprise. And the surprise comes in different flavors. It’s an anomaly, something that doesn’t fit with what we expected. It’s an accident. We were trying to do something and then something else happened. Or it’s an analogy, you say, “This is a bit like that other thing, which is a surprise, a conceptual surprise.”
And that sounds like a trivial thing. But for a corporation, it’s a nontrivial thing because a corporation is a bit like a sphere. In other words, the larger it gets, the larger the radius gets, the smaller the ratio of the surface area to the volume. In other words, it’s more and more likely that corporations become internally facing, you have internally facing roles and internally facing concerns and meetings and issues. And so you don’t notice those changes, those small changes until they become big changes, until they become cascades.
So I think seeking surprise is part of this first stage that we call the seduction, the reason to reimagine. And when we looked at this, and we talked to lots of entrepreneurs, it seemed to us that there was a necessity to see these surprises. So external orientation is one aspect of that. I think looking beyond average as an aggregates is another one. We may look at the world and say, “On average, the customers love our product.” But if you don’t notice the first one who doesn’t, or the first five who don’t, then eventually the average changes, but then it’s too late.
And then when we see these anomalies, of course, the anomaly doesn’t tell you what to do, it doesn’t tell you what to think, it’s just a trigger. So we have to reflect and comprehend what might this mean. And that’s a constructive act in the sense that the reality is not inevitable, it’s a signal of possibility, but we have to supply the imagination as to what this could mean.
CURT NICKISCH: You also talk about the sense of play at work, and perhaps losing it to some extent?
MARTIN REEVES: Yes. So, we find this quite hard for companies to entertain thoughts that go against their current business model. And it’s easy to understand why because you’re stepping into the unfamiliar, you’re stepping into the risky, you’re questioning the basis for your success. Sometimes there are taboos about doing that. One of the antidotes to that, and a very important theme throughout the book is the importance of plays.
So what is play? To me, play is de-risked accelerated learning. We suggest 12 managerial games in the book that can be used to playfully create awareness that our mental models are just models and playfully entertain alternatives and to try on different modes of thinking and to break this linkage between what you think and what you do, because thinking is free, executing on thinking is expensive but we need to dealing with the two. We found these games, we’ve really piloted many of them in companies. We found these games a really good way of getting awareness and reflection around these mental models that need to change if the reality of the business needs to change.
CURT NICKISCH: Yeah. Can you give an example of that because it strikes me that the word imagination is something that I read to my daughter in books when – it’s a word that just comes up a lot? And it’s a concept and something that we cultivate in children. It’s just not a word that you use in business.
MARTIN REEVES: I think it’s right. And that’s part of why we felt that it was a useful thing to write a book about this because probably the last time we were educated and encouraged to exercise our imaginations was in kindergarten, lots of children’s books do deal with imagination and the imaginary and imaginary narratives. And that playfulness, that mental exploration, that’s not the core of the curriculum in a typical business school.
And so, let me describe one of the games which is adults playing in a business context. So one of the games, for instance, is the friction game. So the friction game says, look, any ideal business, a business in an economics textbook has no friction, it has a large number of sellers, a large number of buyers, perfect information, no mistakes, no rework, no misunderstandings. But in the real business, of course, has frictions.
What if we first calculate the frictions in our business? So, for instance, let’s take an insurance contract. In the real world, an insurance contract is incomprehensible. We probably can’t insure exactly what we want to insure. It’s very hard, very complex to calculate the trade-off. Is it worth paying this amount for that amount of coverage? We probably expect the claim to be disputed, we probably pay a hefty margin to an intermediary, an insurance broker. We imagine a world where these frictions disappear. And that’s a useful thing to do. Because logically, what would a disrupter look to disrupt your business? Eliminating major friction would be a sensible thing to think about.
CURT NICKISCH: You also tell the story of a Japanese company that actually found festivals were a helpful way to change company culture and output.
MARTIN REEVES: Yes. So we were very interested in companies that had reinvented themselves. So many startups are successful once. And many great companies are built on one big idea. There are many fewer companies that are encore companies, if you will, where they are great with one thing, and then great again with another thing. And so we focused on those companies. I’d actually been a consultant in Japan for 13 years. I was so curious about a company called Recruit. The Recruit company, basically, is a B2B business. And they’re a serial pioneer of new B2B businesses, B2B service businesses. I was interested in how they did that. And they invited me to spend a week with them.
And it turned out that the core of their philosophy is the idea of creating entrepreneurial heroes and putting a spotlight on the heroic journey of new business creation, which is quite different from the celebration of administrative seniority, or current financial performance, or the size of my business, and influence. It’s a celebration of future potential.
They actually did a little research on this, what’s the best way of doing that? They concluded from their research that festivals are very important. What they mean by a festival is something that cuts across organizational boundaries. So it’s something that everybody can participate in, something non-hierarchical, something with a very celebratory spirit, and something with an element of challenge involved.
So they have these festivals, which are essentially meetings where large number of people participate, and people are pitching new business ideas. And they have a rule that anyone with an idea providing they have a follower, somebody wants to join the team gets the first stage of funding. And then there are some hurdles thereafter.
Interestingly, the first thing I was told when I entered this company was, “We want to introduce you to the most important people in this company.” And they introduced me not the first to the president, or the head of HR, or whatever, they first introduced me to these entrepreneurial heroes. So I had a long sit-down session with one of these, Mr. Yamazaki, who’d started a very novel digital education business.
So this is a good example of the fourth stage in our model, which is what we call the epidemic which is the art of having ideas spread obviously epidemic in the good sense of the word, ideas spread like viruses. And if they don’t spread, of course, they remain a private fantasies or pet projects, an idea with no followers with no funding with no early adopters, without internal organizational momentum isn’t worth very much. So that was part of exploring the collective sociology of ideas.
CURT NICKISCH: For any podcast episode about imagination, you have to talk about Lego, or at least I’ve heard people talk about Lego many times when it comes to imagination. They just have a brand of a very imaginative company. Are there misconceptions or untold stories about Lego that you think are useful?
MARTIN REEVES: Well, I spent a lot of time with the chairman of Lego, Jørgen Vig Knudstorp. So he gave me access to the Lego museum and archives, and we spent many hours discussing Lego’s journey, and there are many interesting parts about it. And you’ll see a lot of those in the book. Lego means leg godt, which means to play well, and their philosophy, both their brand philosophy, but also their operational philosophy is learning through play. So it’s a company that doesn’t just celebrate a practice play, it’s central to their business model. So that was very interesting. So there’s a large part of that in the book.
And then if you look at the history of Lego, it’s actually a history of lateral imaginative moves. So briefly Lego starts off as a carpentry company, and then it becomes a wooden toy maker. And then they invested entire year’s profits in a newfangled technology called plastic injection molding, and they become a maker of plastic toys, and then they hit on the idea of a system of play. So you’re not just making individual toys, you’re creating a system of components that can be used to make many things, which is-
CURT NICKISCH: In business terminology, it’s a platform toy.
MARTIN REEVES: It’s a platform toy, and the process of playing with a toy is actually an act of recombinatorial innovation that children have absolutely no problems with, even though companies find it challenging. And then, of course, this acquires imitators, and so they need to extend this so they move from a brick based toys to they created the figures to open up the market, and then they opened it up to girls. It was predominantly a boys toy at one point in time. So now they broaden the appeal to a wider audience. And then they’ve more recently extended this into theme parks and movies. And you can’t do any of that unless you’re really taking seriously the process of systematizing imagination. So we tell that story in the book. And look at some of the techniques that they use.
CURT NICKISCH: People also tend to think of imagination as something that happens in our minds, something that can’t be shared or collective. What’s wrong about that misconception?
MARTIN REEVES: Well, so I think the common conception of imagination is that it’s individual. It’s mental. It’s momentary, and it’s elusive. It’s not something that you could practice deliberately or systematically. I think part of cracking a system for imagination was to seriously question those assumptions. And you’ve just asked about one of them, the unworldliness.
So it is true that one of the stages in harnessing imagination is step two in our six-step framework, which is working the idea. So it’s very important to work a mental model. You see the anomaly, you think about what it might mean, and you evolve it, and you apply constraints and you release constraints, and you recombine the elements. So lots of techniques for evolving a mental model, none of which we learn in business school, incidentally.
So, in that sense, yes, imagination is a mental act. But we’ve already spoken about the fact that mental act is triggered by anomalies and surprises in the real world. So that’s one crossover from reality to the mind. And then in the next stage, stage three, which we call the collision, where you re collide the evolved idea, the idea for new business with reality. There, again, the idea gets tested in the real world. And that’s a subtle process because on the face of it, what’s going on is you’re testing an idea for validity. And you are doing that, but also you’re generating new surprises. There are things about reality that you discover that are then fodder to reimagine further. So that’s physical and mental.
And then you have the social stage, where the idea has to leap from one mind to another. And that often involves something that you can point to, which is a prototype or an experiment in the real world. That’s how we communicate ideas because, of course, I can’t directly see the idea that you’re thinking about. It’s what philosophers call the intersubjectivity problem. We have to be sure that what I’m imagining is what you’re imagining. So that is mind to mind via reality.
And then, of course, we have to get very physical because we can’t leave this as something that the success of the new product can only be replicated by the initiates in the innovation process, we have to make this so that somebody in the other side of the world without any of the context can replicate this, they can replicate the great customer service of the Four Seasons Hotel chain, or whatever the innovation happens to be.
So it’s codifications, that’s extremely down to earth, that’s about, what are the things that employees have to do to replicate the success? And you have to restrict that to the essential elements because if you gave a complete instruction or manual for everything, it would just be overwhelming. And then you have to go around the cycle again. So, I think you can see that ideas are crossing into the mind, crossing into reality, crossing into other minds, being embodied in physical, external processes. So harnessing the imagination is absolutely not solitary or entirely mental.
CURT NICKISCH: You’ve talked about companies that are serial imaginative firms, and others that have built play into just the core of the fabric of the company itself. What can you do if you’re a company that once did have good ideas, and you’re looking to keep that mojo to stay relevant?
MARTIN REEVES: Many large companies are focused on optimizing current performance. And the economy becomes bifurcated into companies which have high growth rates, high P/E ratios, and no profit, and those which have low P/E ratios, low growth potential, but high current profitability. And that could last for quite a while. But eventually, obviously, that leads to decay if their legacy is not renewed.
And I think that’s the position of many large companies right now. So, the interest that the researchers has generated, much of it has been from companies large success currently and formally successful companies that want to reimagine themselves and are looking for how to do that. So we did look at some companies like Lego, like Nokia that had been through the process of reimagining themselves and we sourced some common denominators. So if you like, the question is, what are the leadership acts that could reignite the cycle of imagination?
So one theme is crisis. So as humans we often respond to, with great ingenuity to necessity. But a competitive crisis, for example, is often leaving things a little bit too late. So you can embrace a crisis or you can precipitate a crisis. And one good way of precipitating a crisis is to what we call the bad customer game, where on average, your customers may love you, but you’re interested in the marginal 1% that don’t, and whether that 1% is becoming 2%, and what they’re thinking and most businesses, they may disagree with their colleagues easily or reject your ideas from their colleagues. But it’s rare to not respect the customer. So that’s one way of creating a sense of urgency and crisis and hunger.
CURT NICKISCH: Yes, it’s like looking for an anomaly, it’s just in your customer centricity –
MARTIN REEVES: Yes, looking anomaly, and it’s also trying to discover a sense of urgency. It’s when you say, “Are we thinking about this big new thing, or we sure we’ve got the right recipe?” And somebody says, “Look, we’re fine. The profitability has never been higher.” It’s essentially not equating success with lack of urgency about the future.
CURT NICKISCH: What can the individual contributors do? How can you incorporate imagination into your work and the organization better if just from an individual standpoint?
MARTIN REEVES: I think we now live in a world where it used to be that corporations lasted longer than the people that worked in them. And we could think about perhaps our parents were experienced a one-company career and maybe a one function career, or one function in one company career. That’s now more or less arithmetically impossible in many companies because we live longer than the companies that we work for. The pace of business is extreme.
And we spoke about that in terms of the consequences of a company, they need to reimagine and reinvent. But it’s also, of course, true for the individuals. So I think your question applies to everybody actually. And so what can we do as individuals to both contribute and give longevity to our own careers? I think we need to essentially experience all stages of the ideal life cycle. So I think the idea of joining a mature business and being a functional contributor in a mature business, which will last for the length of our career is now unrealistic in many cases.
So we have to be used to have the skill of finding ideas, developing ideas, piloting ideas, for building businesses, codifying businesses, and yes, optimizing mature businesses, that’s if traditional managerial role is still there, it’s just not the only role. And then disrupting, self-disruption, the reinvention. So it’s partly about making sure that you’re building a career that has multiple stages of experience. And it’s also partly about creating a sufficient stock of and facility with mental models.
What stops us from seeing the surprises and the inspirations which somebody will pick up, one of our competitors will likely pick up. What stops us from seeing that, it’s curiosity, it’s range of experience, a number of mental models that we can apply to any situation is practicing so-called counterfactual thinking, think about things that are not the case that could be the case. It’s a skill of listening and communicating and entertain the best case for ideas, early-stage ideas, which are still very fragile, and doing that in a team context.
So I think we can all read this book and think about what our companies can do, but also what we could do to build our skillset in order to give our careers durability.
CURT NICKISCH: Yeah. Martin, thanks so much for coming on the show to talk about your research and what you found.
MARTIN REEVES: My pleasure. Yeah, thanks for inviting me on.
CURT NICKISCH: That’s Martin Reeves, a Senior Partner and Managing Director at Boston Consulting Group. He’s a coauthor of the book The Imagination Machine: How to Spark New Ideas and Create Your Company’s Future.
This episode was produced by Mary Dooe. We get technical help from Rob Eckhardt. Adam Buchholz is our audio product manager. Thanks for listening to the HBR IdeaCast. I’m Curt Nickisch.
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