Companies Need Transaction Design for Faster Technology Returns

Many profitable, hard working businesses find themselves burdened over time by their own tools and processes. Maybe a tool like Excel or Quickbooks was the right tool for the job, once upon a time, but now the organization has grown to keep up with customer demand and you find it hard to manage as those tools are now a burden.  Or perhaps your company is competing in a crowded market and you feel a pressure to continually invest in technology to compete. This makes sense, given how companies like Amazon and Shopify have dramatically shifted retail models with their technology-first approach to customer frustrations like shipping, returns, and check out. 

There are usually only two ways that leadership approaches these problems. First invest into optimizing current and known bottlenecks, and this is a sound approach. By and large it's a great approach because you can identify clear metrics and double down on improving the numbers. This is winning. The second is that you invest into novel experiments - new flavors, new materials, or new customer experiences such as a digitized checkout lane or AI voice assistance in the changing room. These projects are expensive, so are limited to small-scale pilots, and performance impact can take a bit of effort to measure. 

I've found that a third model also exists. This model only exists "sometimes, is fleeting, and requires an anthropological rigor to identify. I call this kind of work Transaction Design, when you are able to thoughtfully craft a new kind of financial transaction, often by using a simple technology. For example,  Plaid was created by a startup as an API solution to streamline transactions for investment tools like Robinhood, so individuals can make small investments with lower fees, and do this quickly. Another examples include Sophi's use of housing equity to offset student loans, enabling millennials to buy a home and pay their loans; or the notion that security deposits for apartments can be outsourced as insurance, so that millennials do not need to save 3X the rent, while reducing overhead compliance challenges for landlords.Here is the thing - any time a technology enables a capital transaction that could not previously exist,  it becomes a repeatable model. 

Transaction design can be implemented with speed and low-costs, unlike and expensive tech-heavy pilot of novel gimmicks, and creates new kind of customer insights with less investment. In fact, transaction design can generate rapid returns on existing tools, and give insight into how to design a tech roadmap for future capability needs, not just to amend current gaps. After all, isn't the biggest waste of money to only exist in meeting current market conditions, when those conditions are certain to change? No one wants that - especially share holders. 

How do you conduct Transaction Design in your company? You should not just run out and start trying to slam them into your current enterprise - that's for sure.  Also brainstorming exercises are never the best place to start.  Rather, you need to find the right expert, someone who understands the breadth of conversion models out there and has the means to understand your organization through its data, it's structural design, processes, and people. At the end of the day, it's always about the right people, because that part never changes.

Hire the Right Innovation Executive (CXO, CIO, CTO, CINO).

Executive recruitment is not easy. Hiring great people is always a challenge, but leadership recruitment is a high risk, and potentially costly endeavor.  If you bring on the wrong person for the job,  it can cost the company millions of dollars.

In recent years, corporations have sought to in inject innovation into their operations. Around 2012, companies like Target invested millions of dollars into creating model stores to test ideas, gas spectrometers to streamline produce supply chains, and hired a slew of people trained in design thinking. It also spun up "Project Goldfish," a secret effort to create the store of the future. By 2017 Target shut down many of these projects, as the abstract futuristic research conflicted with the reality poor revenue.

Today,  innovation is at the heart of growth for Target, but not the same 'version' of innovation that was pursued in 2013. The approach today is about solving real problems and making real impact on the bottom line. Today, target utilizes near term and long term methods, and has grown it's data science capabilities to coordinate with design-driven methods.

We can learn many things from this example, but the central narrative is that "research," is not the driver for corporate innovation. "Development" is the engine.  While all the development should be supported by a culture and sound methods in experimentation, exploration, and at the end of the day - you gotta make the thing, keep making the thing, and get results.

The most critical marker to identify the best hire is simple: How does this person drive results in the real world by introducing radical insights with effective action?

By and large, innovation executives focus on the things of technology, data, or the customer experience, or they focus on the how, agile development, user research, and experimentation methods. A good innovation executive will succeed in building these things and processes - yet a better one is far more focused on the what and the why, what will these things do in the world and why does it matter?

Innovation leadership demands the ability to create compelling visions of the future that are connected to existing evidence, but about 3 deviations removed into the realm of possibility. Leadership is the translation of that vision into processes and artifacts through others, to make that vision tangible. If this leader is truly great, then unexpected and unknown obstacles will become assets and new discoveries will further realize the vision, not undermine it. Sometimes this means the first steps are "less innovative," because a particular company weakness needs to be resolved, or because the workforce isn't mobilized.  Yet every every step of the way, this person can translate the profound into the ordinary.

True Innovation Makes No Sense Yet Changes Everything

Over the decades I have spent countless hours with executives who seek to bring innovation to their IT systems or their businesses. They say they want dramatic changes. They are 110% convinced that certain technologies can make it possible.  But what they really want is to increase profits, increase efficiency, improve communications, and have greater control over their company.  Those are all good things and quite often, they want proven conventional methods to satisfy many of those needs. Innovation, however, consists of introducing an unknown variable into the mix, so that one cannot entirely predict the outcome. At first, no one likes that idea. 

In the photo above I am soaking pieces of an apple tree and a lemon in a sanitized bucket of distilled water. After a few days I will boil this water and add sugar. I will then filter out the items, cool it down, and bottle it with a chosen yeast to make a hard seltzer, approximately 4.5% ABV and 100 calories. Everything about this process is standard... except the infusion of apple wood and lemon.  I have only a vague idea what this might taste like, based on my experience of smoking meat with apple wood, the smell of the wood, and my familiarity with lemons. Perhaps this infusion won't work at all, it will make zero perceivable difference, or perhaps it will yield a disgusting result.  

To manage the risks, I am only creating one gallon of alcohol. Furthermore, everything I am doing is based on previous experiences and data, with the exception of the wood and fruit. If the outcome is terrible the cost was low. If it is only "a little" terrible, then I can try another version. Maybe apple wood and no lemon? Maybe pieces of oak under pressure - like this Cleveland-based company that uses a similar approach to age bourbon in merely one week?

The process I just described is not innovation. Soaking some wood in the water is somewhat novel, but thats about it. The overall process is more akin to the scientific method as a structured approach to incremental learning. This is one way, the most common way, to manage innovation. The innovation part is leveraging absurdity. Apple wood is a high risk, untested,  and by all means reckless ingredient that is likely to sabotage my brewed product. Have you ever seen an apple wood flavored beer on the shelf? Is this because it is a proven bad concept,  or did no one ever make the leap to try it, then try enough to succeed?  The only insight to hedge the risk, again, is my personal subjective experience with the wood which I used in a smoker, and that isn't very reliable. 

The risk to take a nonsensical action, and to persist in the nonsense, is at the heart of innovation, art, and insanity. The incredible opportunity is the small, yet viable probability that my reckless action will generate massive returns if all goes well. If it doesn't - well, then we could. have trouble. Creating a process to manage innovation is essential to keeping your company afloat by keeping the risks small.  But this still isn't innovation.

Yet what if, somehow, maybe this apple wood seltzer introduces a new idea about beverages. What if it surges in popularity, so much that it will generate an entirely new market of organic wood infused beverages, demanding an increase in new forestry growth and sustainable forestry practices. Maybe this demand will be high enough that it leads to new kinds of job creation,  and inspires other markets that enhance taking care of the earth. Just maybe, I soak some wood in a bucket, and with constant dedication and determination, transform the entire way beverage ingredients are sourced to stimulate new growth in the rain forests and stimulate new economic models.

This is all possible. Before Uber or Lyft, most people would never have jumped into a stranger's car. Before Starbucks, no one in their right mind would have spent seven dollars on a coffee. And before I started brewing beer in my basement, I never thought about the taste of a tree.

When irrational action meets profound vision to inspire a chain of consequences that forever change the lives of people, businesses, and communities – then you truly innovated.  If you are good at it, you don't need a 10 million dollar team of technicians to start, you just need a 5 gallon bucket and a few small logs.