How Leaders Can Encourage Imagination

AI is transforming the world and it starts with the right compute. ARM is the AI compute platform trusted by global leaders, proudly NASDAQ listed, Built for the future. Visit arm.com discover. Welcome to the hbr ideacast from harvard business review. I'm kurt nickish. The Finnish mobile handset company Nokia, you probably know, is no longer in the mobile handset business. What you maybe don't know is how it reimagined itself after suffering defeat in the marketplace. When Risto Silasma joined the company board, he made a rule that for any decision, alternatives had to be discussed. He calls that formed imagination. Nokia eventually decided to sell its handset business. Silas Musk 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 is a co author of the book the Imagination how to spark new ideas and create your company's future. Martin, thanks for coming on the show.

My pleasure.

We all have an idea of what imagination is.

What did you discover in your research that changed your mind about imagination?

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. And if 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. And our quant research says that while the performance of large corporations may be attractive, the growth potential tends to decline over time. So what we call the vitality, which is the potential for future growth, declines by 3 percentage points for every doubling in 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.

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.

Yeah. In that sense, the Times have changed. So going back to this idea that the fade rate of competitive advantages 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 persist, 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, a streak of divine inspiration and it's a magical property endowed to certain creative individuals. Like Steve Jobs.

Right, the fallacy of the eureka moment.

Right, the eureka moment. You know, two 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, you know, consumer psychology and HR management. So why not be a little bit more systematic about imagination is the thought behind the book.

So you put kind of a structure around imagination which is, you know, something that's so organic and hard to contain. It starts with generation, right? Where do ideas come from?

So I think it all starts with surprise. And the surprise comes in different flavors. It's an anomaly, you know, something that doesn't fit with what we expected. It's an accident. We were trying to do something and something else happened. Or it's an analogy, you see, ah, this is a bit like that other thing, which is a sort of surprise, a conceptual surprise. And that sounds like a trivial thing, but for a corporation it's a non trivial thing. Because a corporation is a bit like a sphere. In other words, the larger it gets, the large 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 and 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 sort of 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. And so external orientation is one aspect of that. I think looking beyond averages and 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.

You also talk about the sense of play at work and perhaps losing it to some extent.

Yes. So we find it's 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 sort of questioning the basis for your success. And one of the antidotes to that, and a very important sort of theme throughout the book is the importance of 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 delink the two. And we found these games. We've already 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.

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. Right. When it's a word that just comes up a lot, and it's a concept and something that we cultivate in children, and it's just not a word that you use in business.

Well, I think that'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. But any real business, of course, has frictions. And you know, 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 ensure exactly what we want to insure. It's very hard, very complex to calculate the trade off. You know, 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 and insurance broker. So we imagine a world where these frictions disappear. And that's a useful thing to do because logically, where would a disruptor look to disrupt your business? Eliminating major friction would be a sensible thing to think about.

You also tell the story of a Japanese company that actually found festivals were helpful way to change company culture and output.

Yeah, so we were very interested in companies that had reinvented themselves. Many startups are successful once and many, many great companies are built on one big idea. But there are many fewer companies that are encore companies, if you will, where they great with one thing and then great again with another thing. And so we focused on those companies. And I'd actually been a consultant in Japan for 13 years, and I was very curious about a company called Recruit. And the Recruit company basically is a B2B business. They're a serial pioneer of new B2B businesses, B2B service businesses. And I was interested in how they did that and they invited me to spend a week with them. And it turned out that at 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, you know, future potential. And they actually did a lot of research on this, which is what's the best way of doing that. And they concluded from their research that festivals are very important. And 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. And so they have these festivals which are essentially meetings where a 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 two 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. And 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, like viruses. And if they don't spread, of course, they remain 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.

For any podcast episode about imagination, you have to talk about Lego, or at least I've heard that, heard people talk about Lego many times when it comes to imagination, they just have a brand, right. Of a very imaginative company. Are there misconceptions or sort of untold stories about LEGO that, that you think are useful?

Well, I spent a lot of time with the, with the chairman of lego, Johan V. Knutzstop. So he gave me access to the LEGO museum and archives and, 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. So there is LEGO means leg God, which means to play well. And their philosophy, both their philosophy, their brand philosophy, but also their, their operational philosophy, is learning through play. So it's a company that doesn't just celebrate or practice play, it's, it's central to their business model. 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 invest an entire year's profits in a newfangled technology called plastic injection molding, and they become a maker of plastic toys. And, 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.

In business terminology, it's a platform toy.

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 problem with. Even though, you know, companies find it, they find it challenging. And then of course this, this, this acquires imitators and, and so they need to extend this so they, they move from a brick based toys to, they made them make the, they innovated the, created the, the figures to, to, to open up the market and, and then they opened it up to, to girls. It was predominantly a boys to toy at one point in time. And so now they, you know, they broaden the appeal to a, 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.

People also tend to think of imagination as something that happens in our minds, something that can't be shared. What's wrong about that misconception?

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, or systematically. And 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 otherworldliness. 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 see, think about what it might mean and you evolve it and you apply constraints and you release constraints and you recombine the elements. There are 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, 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 recollide the evolved idea, the idea for a 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. That often involves something that you can point to which is a prototype or an experiment in the real world. That's. 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 initiate in the innovation process. We have to make this so that somebody, 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 that's codification. So 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. But because if you gave a complete instruction of a 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.

You've talked about companies that are sort.

Of serial imaginative firms and others that have built play into just 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?

Many large companies are focused on optimizing current performance. And the economy becomes bifurcated into companies which have high growth rates, high PE ratios and no profit, and those which have low PE ratios, low growth potential, but high current profitability. And that can last for quite a while. But eventually obviously that leads to decay if the legacy is not renewed. And I think that's the position of many large companies right now. So the interest that the research has generated has been, much of it has been from companies large success currently and formerly 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 saw some common denominators. So if you like, the question is what are the leadership acts that could reignite the cycle of imagination? And so one theme is crisis. So as humans, we often respond to, with great ingenuity, to necessity. But a crisis, a competitive crisis, for example, is often leaving things a little bit too late. And 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 new ideas from their colleagues, but it's, it's rarer to not respect the customer. So that's one way of creating a sort of a sense of urgency and crisis and hunger.

Yeah, it's like looking for an anomaly, right? It's just in your customer centricity, maybe.

Well, it's looking for an anomaly and it's also trying to discover a sense of urgency when, you know, it's when you say, are we thinking about this big new thing or are 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.

What can individual contributors do? How can you incorporate imagination into your work and the organization better if just from an individual standpoint?

Well, I think we now live in a world where it used to be that people lived long, sorry, corporations lasted longer than they, the people that worked in them. And we could think about perhaps our parents 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've spoken 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 lifecycle. 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, to have the skill of finding ideas, developing ideas, piloting ideas, building businesses, codifying businesses and yes, optimizing mature businesses. That 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. You know what stops us seeing the surprises and the inspirations which somebody will pick up. Our competitors will likely. One of our competitors will likely pick up. You know what stops us from seeing that? It's curiosity, its range of experience and number of mental models, models that we can apply to any situation is practicing, you know, counter, so called counterfactual thinking. You know, thinking about things that are not the case. That could be the case. It's, it's the skill of listening and communicating and entertaining the best case for ideas, early stage ideas which are still very fragile and doing that in a, in a, in a, in a team context. So I think we can all, you know, read this book and think about what our companies can do, but also what we could do to build our skill set in order to give our careers durability.

Yeah. Martin, thanks so much for coming on the show to talk about your research and what you found.

My pleasure. Yeah, thanks for inviting me on.

That's Martin Reeves. He's a senior partner and managing director at Boston Consulting Group and he's a co author of the book the Imagination how to spark new ideas and create your company's future. This episode was produced by Mary Dube. We get technical help from Rob Eckhart. Adam Buchholz is our audio product manager. Thanks for listening to the HBR IdeaCast. I'm Kurt Nickiss.

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