Business Techonomy Events

Scott Cook on Scientific Experimentation in Business

In this video from the “Revolutions in Progress” session at Techonomy 2011, in Tucson, Ariz., Scott Cook, Founder and Chairman of Intuit, tells two stories about how scientific experimentation helped institutions find innovative solutions to complex problems. First, he describes how junior-level staff at his company created a text-message notification system for farmers in India to alert them about crop prices in nearby markets. Senior management initially doubted the tool’s viability, but it went on to significantly improve the livelihood of over 400,000 Indian farmers. Second, he profiles the Chinese city of Shenzhen, where in the 1980s government officials allowed local markets, instead of communist government regulations, to dictate economic growth, providing a successful model for the rest of China. Also appearing in this video: Roger McNamee, Managing Director of Elevation Partners.

Cook: You asked about a wand, I think there is a wand one can wave. Now, it’s not magic, but it’s a wand nonetheless.  And it’s the use of scientific experimentation inside organizations. A little stray with two quick stories. A company story, a government story. The company’s ours. Our head of global asked teams in India, our teams, to figure out, how can we improve the lives of people in—the financial lives of people in India? One team had the idea of focusing on farmers. They’re half of the people, population in India. We’d never done anything with farmers. The bosses were uninterested. So the team went out, researched, spent time in the fields, time with the farmers, time in their homes, came up with a problem that they thought they could solve. These guys don’t know where to take their goods when they harvest them. Do they take them to the town to the north? The town to the south? The town to the east? Which wholesaler will give them the best price? And once they get there, how do they know what price to insist on?  So our little team said, “Why don’t we just send them—collect the prices and send them to them on SMS so they get them on their phones?” Well the bosses had all the reasons it wouldn’t work. You know, the farmers are often illiterate. Could they read it? Would they believe it? Would it change behavior? Would they get higher prices? And would we even be able to get the price information from the wholesalers, who are going to see that information to us could skew demand away?

Well the team, because of the culture of experimentation, didn’t listen to the bosses.  Instead they ran an experiment.  Seven weeks, they faked up a product, went out and tried it. Two weeks later, they had proof it would work. One hundred and ten farmers, on average, they reported 16 percent higher incomes, and 12 of the 14 wholesalers said they’d continue to give us the data. Thirteen experiments later, we now have over 400,000 farmers who get price information on their phones in India, and it’s doubling every few months. The bosses would have killed it. But because of experimentation, cheap experiments, that was an idea that could prove itself. This is a new kind of management, where instead of viewing the boss’s role as the Caesar to make decisions, the boss’s role is to put in a system whereby junior people can run fast and cheap experiments, so that the ideas can prove themselves.

A quick government example. Can you set government policy by experiment?  One country has:  China. When Deng Xiaoping took over China in 1980, the country was a wreck.  Starving, grinding poverty; they couldn’t even create the jobs to feed their people. He did many things. One thing Deng Xiaoping did is he did experiments. One is he put a fence around Shenzhen, and while the rest of the country stayed under the Communist economic rule, Shenzhen was freed to run by some free market rules and allow foreign investment. And then they watched the experiment, and compared the AB test. Well you know what happened. Shenzhen’s economy exploded:  jobs, wealth creation. That experiment was then expanded to the rest of China, creating the Chinese economic miracle. More people in less time moved out of poverty, because they ran experiments. And the Chinese government continues to run experiments, AB tests to use that to determine government policy. When you do this in an organization, it moves decision making from politics and power point to enabling ideas to prove themselves.  Nothing enfranchises innovators and the junior people in organizations more, and nothing’s more important to inventing the future.

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