Karl Ronn: Part 2 of an interview by Bob Morris

Posted on: December 1st, 2014 by bobmorris

RonnKarl Ronn is the managing director of Innovation Portfolio Partners. Based in Palo Alto, he helps Fortune 500 companies create new businesses or helps entrepreneurs start category creating new companies. He is a cofound VC-backed Butterfly Health that sells Butterfly body liners nationally. He is also developing a software company building diagnostic competency for physicians using virtual human simulations of top medical school cases.

Previously, he was vice president of Research and Development and general manager of New Business for Procter & Gamble, where he was one of the key innovators behind Febreze, Swiffer, and Mr. Clean Magic Eraser. In addition to these brands he was responsible for the Global R&D for Pharmaceuticals and Over-the-Counter Health Care including Actonel, Vicks, Prilosec, and In-home Diagnostic Tests. He has also managed Beauty Care businesses and started Diaper and Maxipad businesses across Latin America.

He is on the advisory boards of Johns Hopkins Bloomberg School of Public Health and the University of Toledo. He is a member of TED conference and has been a speaker at the Mayo Clinic, Consumer Medical Conference, AMA and other innovation forums. He is the co-author with Bob Johansen of The Reciprocity Advantage: A New Way to Partner for Innovation and Growth, published by Berrett-Koehler Publishers.

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Morris: When and why did you decide to write The Reciprocity Advantage and do so in collaboration with Bob Johansen?

Ronn: Bob and I have known each other for a long time. His Institute for the Future, IFTF, did forecasts for P&G and I was a user of them. When I moved to Silicon Valley I asked Bob to come work with me as I helped senior management teams find new areas of growth. We were flying back from the Philippines after a successful meeting where Bob had opened their eyes to the future and I had worked to turn that into tangible new business leads. Bob realized that the IFTF model of foresights into insights into action described our partnership.

Bob was strongest at foresight into insight and I was strongest at insight into action. This became our personal reciprocity advantage. Together we were capable of doing what neither of us could do alone. Having written several books, Bob suggested we try to write a book together. The result is The Reciprocity Advantage. Bob and I collaborated on the Part 1, the model. Bob took the lead on Part 2, the future forces. I took the lead on Part 3, creating you own reciprocity advantage.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Ronn: Not really. We already knew that the future would require reciprocity. It is a social media world and control is more of a myth than ever. Writing the book clarified our thinking. Both of us know a lot more about what each other do and can tell the other part of the story better, but Bob’s still the foresight to insight guy and I’m the insight to action guy.

Morris: To what extent (if any) does the book in final form differ significantly from what you originally envisioned?

Ronn: We submitted an overview and an outline for the book that is nearly identical to the final book. This three-part outline with four steps to the model covered in each part drives the twelve chapters. Then there needed to be an introduction and a Chapter 13 to discuss the future. It is what makes it possible to co-author a book. As we describe in good partnerships (Chapter 10), we came together to do one specific agreement. That kept us focused and also made it possible to ignore the hard parts about co-authoring.

What’s more different for me has been the reaction. Since publishing I have been commenting on most of the big business news stories involving acquisitions, divestitures, new alliances and partnerships. The framework we are using for creating new businesses is very useful in analyzing these news items. I’m even more impressed with IBM and Apple with their recent announcements. Both continue to share their right-of-way to create new businesses and have very robust innovation approaches. It is sad to see companies like HP struggle for what are very recognizable — and avoidable — problems. Reciprocity is the future, but the time to act is now.

Morris: You suggest that there are eight essential steps to the design thinking process, beginning with frame the given challenge (i.e. the killer issue to be resolved) and concluding with sharing the prototypes with senior management to obtain a commitment of resources. Which step seems to be the most difficult to complete?

Ronn: Tim Brown (IDEO) has told me that I ask good questions. Framing the challenge is the most critical part. The general way to frame the challenge should be of this form: Reinvent X, while being sure to leverage Y. Reinvention opens the door to radical change. Leveraging Y is the accommodation of a constraint that must be met. Most projects don’t probe reinvention or, when they do, they apply no constraint. Without the constraint the team will not be grounded to the key needs of the company. Every other step is about a robust prototyping process.

Morris: Here’s a follow-up question. At which point during the process does it usually become obvious that the given initiative should be either stopped or redirected?

Ronn: Let the team define the milestone they will meet in the next 30-90 days. Then after the time is up check the result versus the team’s self-imposed milestone. If they hit it, set a new milestone. If they miss it, give them 30 days to hit another self-imposed milestone. If they miss it again, there is a problem. It is less likely that they are wrong than that they have mis-estimated the difficulty or the problem. For the third try make them get someone else to help determine the next experiment to be run. This prevents group think. If they now see it is so hard and lose passion, stop it. If the third experiment fails, stop the project — at least for now — or find new partners (Chapters 10-11).

Morris: What unique leadership challenges does this approach pose? How best to avoid or overcome them?

Ronn: Day-to-day business is about production. This is about learning. Learn about the two biggest killer issues, the next two killer issues, and so on. If you find a killer issue that you can’t manage, you must stop the effort. In the end the team should produce successful new businesses, but but be sure to reward learning along the way.

Morris: What are the defining characteristics of a workplace culture within which the reciprocity is most likely to be achieved and then sustained?

Ronn: The challenge for reciprocity is deciding to share your company’s right-of-way to create new growth. It requires a senior management mindset. If you can achieve all your growth for the next 5 years without new sources of growth, you may not need to practice reciprocity … yet. If your core business is on fire, you will be a terrible partner. Put out the fire and then partner. It is not a workplace culture problem; it is a strategic priority. Sadly, most companies react too late. Hilton or any other chain could have done AirBnB and now couldn’t afford to buy them. eBay is selling off PayPal just as Apple is entering with Apple Pay.

Morris: As I indicate in my review of the book for various Amazon websites, there are dozens of passages throughout your narrative that caught my eye.

For those who have not as yet read the book, please suggest what you view as the most important point or key take-away in each of these passages.

First, TED’s Reciprocity Advantage in Summary (Pages 6-8)

Ronn: I wrote a Fast Company blog on this. TED maintains control of the main stage and created TEDx, the crowd sourced business that they curate. TED defined their right-of-way, “TED-in-a-Box,” and gives it away to TEDsters to create a grass roots movement. Brands need to decide what they will control and then what they can curate.

Morris: IBM’s Right-of-Way Reimagined (18-20 and 23-25)

Ronn: Smarter Planet was the first example of IBM’s reciprocity advantage. They bring their data know-how to startups and cities to tackle big new problems. Success here will generate new businesses and feed IBM’s current businesses. IBM Watson is now offered as a super computer anyone can use. This will create new reciprocity advantages for IBM. Most recently they announced partnerships with Apple and Twitter, two more examples of how they are embracing reciprocity.

Morris: GFSI’s Reciprocity Advantage in Summary (34-35)

Ronn: Reciprocity also works for non-profits. In this case companies came together to ensure the safety of the food supply. Safety of food shouldn’t be a competitive advantage so it is a great reciprocity advantage business.

Morris: Google Fiber’s Reciprocity Advantage in Summary (41-43)

Ronn: Google needed to see the future to find new businesses. They made Kansas City, an average city, into a place where speed was unlimited. Thousands of businesses have flocked to this test bed to create the future. It’s too early to know what companies will be spawned, but Google can now have first look at them.

Morris: Experimenting to Learn Will Get Smarter and Faster (43-45)

Ronn: Today we have Siri. Tomorrow we will have IBM Watson in our hands. Don’t doubt the capability of small groups of individuals anywhere in the world to do great things fast and cheap.

Morris: Gaming: A Breakthrough to Experimenting to Learn (47-49)

Ronn: Gaming used to be for fun. Gaming is now becoming a way to solve complex problems. Since writing the book I have a newly funded startup creating a flight simulator for doctors. Hollywood virtual human avatars show up on an iPad where a doctor can practice differential diagnosis skills because the virtual patients are role modeling real cases from top medical schools and leading hospitals.

Morris: Apple’s Reciprocity Advantage in Summary (53-55)

Ronn: Apple gets a lot of grief about being too controlling. Yet every time they introduce a new product line they choose a partner to do it with and then open it up to the world as a new innovation platform. Apple created a reciprocity advantage with iPod partnering with the music companies and creating iTunes, with the iPhone by partnering with AT&T and then creating the App Store, now with HealthKit partnering with Mayo Clinic and Epic (Electronic Health Records leader) and now has Duke and Stanford doctors creating new health tools.

Morris: New Tools and Practices for Scaling (57-60)

Ronn: Think exponential. Many of the new reciprocity advantage businesses have a major social component. These scale much faster than traditional businesses.

Morris: A VUCA World on Steroids (64-68)

Ronn: Volatility isn’t going away. Digital natives are socially connected. They will be the future leaders. Their mastery of social media combined with growing up with gaming makes them demand engagement. Marketers need to know they can’t sell to them, they must engage them. Then the digital natives will carry the message forward. Think Facebook: If it isn’t shared, it didn’t happen. The problem is that they will carry forward good messages and bad messages. This is why brands will need to master curation.

Morris: Military Gaming, and, Gaming Your Way to a New Business (92-94 and 96)

Ronn: A general at the War College explained to AG Lafley, the CEO of P&G, the difference between war and business is that people die when you make a mistake in war. This is why the military has embraced simulation and gaming. They are ahead. The technology we are using in my medical simulation was developed by DARPA. Simulation and gaming need to become business tools.

Morris: Cloud-Served Supercomputing (98-100)

Ronn: Today we store data in the cloud. In the near future we will have the ability to do supercomputing using the cloud. This means that SIRI will not only work, but will move from being a personal assistant to giving you a live second opinion. You will still make the decision, but you can have the best knowledge turned into a second opinion to help you do the very best thing. This won’t only be true in developed countries, but available to anyone with a smart phone.

Morris: How Do You Find our Right-of-Way? (112-120)

Ronn: The best summary is on page 113. Earlier in the book we developed the analogy of trains, transportation, and communications to show the three industries each company is in. Trains is your product. Transportation is that same benefit as a service — moving people and goods without rails. Communications required the literal right-of-way, the air above the tracks, to create a new business that is the experience one has when arriving at the new destination; Sally travels to Chicago and communicates with her sister. Chapter 9 explains how to do this analysis on your business in three steps:

1. Begin by defining your core business
2. Reinvent your business as a service
3. Redefine you business as an experience

This takes a workshop discussion with key leaders to agree on the core business and then step back to see the next two reinventions. Throughout the book we show cases to help you see what others have done and on our website, www.reciprocityadvantage.com or at my Twitter @kpronn or @reciprocityadv we update this with other examples to help you with your own journey of discovery.

Morris: Learn by Prototyping (134-137)

Ronn: Your new reciprocity advantage business will not have the same business model as your current business. The new business will likely be different by orders of magnitude in frequency of use. To help you find the new business imagine your product or service being used 100 or 1000 times more frequently. Old advertising used to be a few commercial per day. Google shows us 100’s every day. You need to prototype these very high frequency (or conversely very low frequency) situations to find the new models. If you only probe the same frequency as your current business you will likely find incremental ideas.

Morris: Find the Killer Issues (140-142)

Ronn: As I explained earlier, creating a new business involves making hundreds of assumptions. This can overwhelm a team. Write down 100 assumptions. Then put your best guess next to each. Finally determine which ones would hurt you the most if they were not true. Then pick the two most difficult ones and work on those. If you can’t find leads to solving these, nothing else counts. When you have a good lead, pick the next two. Keep working on the hard stuff, not refining the comfortable stuff.

Morris: Thousands of Prototypes (142-145) Why is it so important to, in my words, “fail fast, cheap, and often”?

Ronn: The biggest mistake companies make is creating a few expensive prototypes and thoroughly testing those few before choosing a winner. This is how prototyping is done on existing business where there are few unknowns. New businesses have 100’s of unknowns and 20 of them would kill your project. So, you need to become a rapid learning organization. Given your first approach to each problem won’t be right, you have to acknowledge that your task will take 1000’s of iterations. The only way this can be affordable is if you master rapid prototyping. This kind of design thinking is not longer new. IDEO has on line sites showing you how to do it. This is a capability that you must develop to create new businesses or hire a top innovation design firm to guide you through your first projects.

Morris: Is It Viable? and, Is It Ownable? (153-158)

Ronn: The book shares a scorecard on page 160 that can be used to keep track of the where your biggest issues for success are. A new business is not a risky business if you know if it is desirable – somebody want it; it is viable – you know how to make money selling it; and it is ownable – you know you will be a player when the market is developed. The problem is that most business scale before they have these three questions answered. Risk is the amount of money you are spending times the probability of filing. There are high failure rates until your new business has proven itself at small scale to be desirable, viable and Ownable. That is why we run cheap experiments. When all three are true the risk is low so the money spent can be high. Keep experimenting until you have all three going for you.

A comment on ownability given this is a book about reciprocity. The reciprocity is between the partners. Together if they do not generate something Ownable, their efforts will fail. Others will enter the market using their learnings and push them from the market. Practice reciprocity with your partners, but protect your joint efforts.

Morris: Of all the great innovators throughout history, with which one would you most want to share an evening of conversation if it were possible? Why?

Ronn: Ben Franklin, America’s first innovator, but I don’t think we would talk much about innovation. We’d talk about the real intentions of the founders versus what is ascribed to them today.

Morris: Let’s say that a CEO has read and then (hopefully) re-read The Reciprocity Advantage and is now determined to establish or strengthen a workplace culture within which personal growth and professional development are most likely to thrive. Where to begin?

Ronn: This isn’t a workplace culture problem. The modest growth goals focused on incremental improvements in the bottom line without bold goals for topline growth are a C-suite problem. Start by raising the bar and demanding growth. This will open the door to the new ideas. Squeeze expenditures on the incremental stuff and it will fund real growth.

Morris: For more than 25 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in The Reciprocity Advantage, which do you think will be of greatest value to leaders in small companies? Please explain.

Ronn: The question for a small company is first whether or not they want to be a big company. If they want to become a billion dollar company, this book directly applies to them. They are more likely to be the partner with the new idea to the big company who has the existing large business. In Silicon Valley all the companies were small once. If the goal is to stay a $20 million sales company, recognize most have a specific geographic barrier to entry that allows them to exist (e.g. automotive dealerships, hospital groups). Read the chapters in Part 2 on the disruptions. The current barriers to entry are changing. Find the innovators in your field and reach out to them to see if you can partner to make them strong locally. You can’t stand still.

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To check out Part 1, please click here.

Karl cordially invites you to check out the resources at these websites:

Book link

Twitter links

@kpronn

@ReciprocityAdv.

For more information about future forecasts, please click here.

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