00:01 DK: Welcome to the Defining Innovation podcast. This is episode number two where I get to speak to Mike Arauz. He’s a partner at Undercurrent. You can find that on the undercurrent.com, a digital strategy firm who help in organizations and companies become more responsive due to digital technologies out there and everything else. So they’ve worked with amazing clients like American Express, Hyatt, General Electric, Ford, even my friends at the Bill and Melinda Gates Foundation. So we’re going to explore today in the podcast really how they go about doing what they do which is incredible by the way. And I kicked off asking him basically about Undercurrent, describe what they actually do.
00:46 Mike: So Undercurrent is a strategy partner, a consultancy based in New York City and we currently just opened up a new office in Los Angeles. And we work with business leaders primarily at large organizations to help them change the way that they work through our combination of both strategy and implementation.
01:10 DK: Great so how does that manifest then? I’d love to get your take and for you to share your five Ps with us.
01:20 Mike: Yeah absolutely. So what we’ve been noticing, we started around 2007 and since we were founded we’ve been very close and kind of integrated into the tech start up world. Our founders are very involved in that space. We actually have a ventures arm of our business. So at the same time that we’ve been working with these large established companies, we’ve also had very close relationships with folks in start up world. And what we’ve observed is that there are fundamentally new ways of operating that we see in the companies that are growing the fastest and having the most disruptive impact on the world. Sometimes those can be very large organizations, you know someone like Google or Amazon. And other times they can be much more emergent start up, someone like Uber for instance which kind of came out of nowhere and has grown at a very, very fast pace. And so if you think about the aspects of any organization and how they operate, it basically comes down to five areas. And you can kind of think of them in a kind of Maslow’s Hierarchy level from purpose at the top, why do we exist? What are we here for? Then process what’s kind of the governance that decides how we do things. Then people, our employees and our wider network. Then product, what are our products and services that we actually sell or make our business off of? And then lastly platform which traditionally could be the underlying infrastructure, the distribution network or supply chain or something like that. But more and more these days it’s a very kind of active and external facing aspect or element of a business. And what we noticed is that across those five domains there’s a value shift in how more responsive organizations think about those elements of their model. So rather than when it comes to purpose for instance, we see an emphasis on a kind of visionary dent on the world even over a commercial purpose with process do turn towards agile processes even over more linear or predictive processes. With people you see a shift towards makers even over managers, people who are actually capable of doing and not just over seeing or planning. With products, products is much more moving towards evolutionary or emergent products, operating under the assumption that there’s no way to know what the best product is going to be six months or a year from now so we have to build a product that is designed to evolve from the start. And then lastly platforms are mostly about opening up. Amazon web services is probably the best example in the world I bet, something that began as an internal infrastructure piece was built in such a way that it could become opened up and became a huge lucrative line of business for Amazon and has had huge, huge, very far reaching implications for the entire business world.
05:28 DK: Fantastic. I just love the language you guys are using and that’s what drew me to Undercurrent in the first instant. And in the beginning I said I’ve been following you for like six to nine months even though you’ve been going for a few years now and I think you’ve got the language really framed right now days and that’s what drew me to you, like I said from an innovation perspective. And in terms of those five Ps I can imagine when you’re going in and working with clients, where do you start? Do you do the whole thing? Do you do just one of those things? Do you do it in stages?
06:01 Mike: Yeah well certain clients of ours we’ve been working with for a while and so it’s a much more fluid process. But we like to do our preference is to do some kind of initial audit of where they currently stack up against this new way of operating. So that can be through a combination of kind of traditional interviews, going around and talking to people within the organization, qualitative research as well as both surveying and virtual tools, and even data mining of publicly available online information, looking at data that you might gleam from company profiles, employee profiles on LinkedIn or what people have been saying about the company on a site like glass door. Those can be interesting sources as well. So we typically start with some kind of assessment that says these are the areas where you are most efficient or where you have the most strength to build off of. And then we can kind of go back and forth and say, all right should we focus on recruiting for instance or should we focus on implementing new process or whatever it might be.
07:21 DK: And one of your staff members and strategist Joanna Beltowska, sorry if I pronounced that wrong —
07:28 Mike: No that’s correct.
07:30 DK: — did a great blog post around the ten times workshop or the ten, yeah 10x, I’ll link to that in the show notes, which really just shares the methodologies of your approach in one of your hands on sessions with your clients. I’d love to hear from you a little bit of an overview of that so people can get a flavor and get them to click through.
07:53 Mike: Yeah I think that that’s a really good example of particularly how we’re putting together a few different sources of inspiration into our work and particularly how we think about doing strategic planning in the most traditional way versus how McKenzie or Boston Consulting or those other established consulting firms would go about it. So the 10x Workshop as Joanna calls it in her post brings together a few different things. One is there’s a really good write up from Google Ventures, a week long structure that they use to rapidly prototype and validate product ideas. And I can send you the link to that. It’s definitely worth clicking as well. And we put that together with ten best practices from agile software development and design thinking. So the process essentially starts with empathy with the user, the customer, understanding their needs and what their problems are, then generating a kind of wide array of potential solutions or value propositions for them, then prioritizing that list based on what you’ve heard from them, then very quickly beginning to prototype some solutions, working as quickly as possible in a very low-fi (phonetic) manner. Typically it’s like sketches on a piece of paper or something like that. Sometimes depending on what it is you might do it in some kind of interactive format. And then putting in front of real potential users and that could be in person. The workshop that Joanna was writing about, this was a structured workshop with a client of ours and so we’re able to bring customers in and do some remote interviews and validation. But you can also do it in an even more distributed manner. You could do search engine marketing to drive to some rough prototype and see how people click or what not. So that’s all by Wednesday and then by Thursday you have some feedback, you have some favorite ideas and you create a slightly more refined prototype. Maybe it has some design components or maybe it has a really simple development back end to it. And you create a slightly more flashed out prototype. And Friday you go back again, you put that narrowed down prototype again in front of some real users. And at the end of the week rather than just coming up with a bunch of neat ideas that everyone feels excited about, you actually have something that you can look at and say we’ve collected feedback on this. This is what works about it, this is what doesn’t. These are some more realistic expectations about how or in what way it could be successful and why the sponsors or the stakeholders should invest in it further.
11:04 DK: That’s great. Thank you for that. I know people are going to click through because it’s just a great write up. So share if you can kind of how you guys because you have a great group of partners and strategists and consultants there, how do you guys define innovation and chat about it or do you even? Do you have those kind of sessions where you talk through stuff?
11:26 Mike: Yeah I mean to be honest I think innovation is one of those words that we try not to worry about too much because we’ve kind of accepted that it’s overused and used in a lot of different ways. But we do, even though that term itself is something that we try not to take too seriously I think the underlying ideas and practices that are associated with it is something that we take very seriously. And the way that we that we think about it is the ability to imagine what could be better and to create it in some way is more important than ever. And that involves a lot of different things. You know the design thinking piece is really important because design thinking — one of the things that’s best about design thinking is reminding yourself to pay really close attention to what users or customers actually need. So that’s always going to be critical in taking that inspiration from them and adding your own intuition. So it’s not like that famous Ford quote, “If I had asked people what they wanted, they would have told me a faster horse.” And part of the reason why someone like Steve Jobs was as great as he was, was that he was able to imagine solutions that no one else could conceive of yet. But at the same time Apple is a really good reference I think for innovation because their biggest successes were not completely invented out of nothing. If you look at the iPod, MP3 players and portable music players had been around for a long, long time before the iPod came along. And yet they were able to solve the user needs in such a way that their solution blew everybody else’s solution out of the water. And they did the same thing again with the iPhone. So it’s a combination of that design thinking plus I think the agile software development comes in where you have these built in routines of validation and fast shipping, that you’re always shipping, you’re always trying something new. You’re always collecting and learning about what’s working and what’s not and then improving on it. So those are the things that we think of and try to bake into how we do things.
14:20 DK: I love that description of the iPod and you’re right. They basically iterated better than anybody else.
14:28 Mike: Yeah and maybe that’s all innovation is just iterating better.
14:34 DK: Yeah improve it faster or improve it better or whatever it is but you’re right and thank you for that. It’s great. Now you guys at Undercurrent also just changed how you operate yourself so you’re talking about creating responsive organizations but you guys just adopted and again I’ll check the fast company link into holacracy right?
14:57 Mike: Yeah.
14:58 DK: So your management structure now matches people like Zappos and Github. What does that look like?
15:06 Mike: Yeah so actually after we get off her I’m happy to send you a screen shot of our org structure because we use a piece of software that goes along with it that helps us keep track of everything. So there’s this practice, this kind of governance, more than anything it’s a rulebook for a way that an organization can govern itself. It’s called holacracy and it’s very largely based off of a philosophical approach to government called sociocracy that was started earlier in the 20th century. And the fundamentals of it are essentially that there are very explicit roles and accountabilities that are transparent to the entire organization, that roles are separate from the people who fill them so any individual might and likely will fill multiple roles in different areas of the company. And then there are weekly and monthly rhythms for checking in and like in a scrum way on what are the things that you are working on in these particular roles, in this particular group? So there’s a reputation group for instance. There’s a client group that focuses on our paid client work. There’s a growth group that’s focused on business development. And so each of those groups gets together on a regular basis and says, “How are our projects going? What’s holding you back? What do you need?” As well as governance meetings, which are about saying there’s this thing that’s really important that’s not getting done. I think we need to create a new role to focus on that area. Or we have this role and we’re all expecting them to do a certain thing but they’re not doing it. I think we should let them know that we’re all expecting that of them so let’s make that official and record it here. So yeah that’s what we’ve been practicing for a little over maybe seven or eight months now. And it’s been interesting. It’s been most useful I think to us in terms of the focus and kind of priority it’s given us. Before we started practicing this we’ve always been a company that is continually adapting and is very eager to change and question ourselves about how things are going. So that aspect of it, it forced us to change was very natural to us. But what was new was the explicitness and the focus of that change. So it was more deliberate instead of more accidental.
18:36 DK: It’s a fascinating model and I referenced Github and Zappos and some of the other companies out there who are using it and for a lot of people I would imagine it’s hard to get their head around. But just that statement you made at the end there, if I can paraphrase, you know adopting and eager to change and that’s what you guys are. And in a sense that’s what you guys sell right? That brings me around to a question which I didn’t ask you earlier on which I’d love to ask you now is how do you create the conditions internally for organizations you’re working with for that eagerness to change to continue the sustainability angle? How does that happen?
19:13 Mike: Well that’s actually, trying to answer that question is probably the main thing that has pushed us to become the kind of company we are today and work in the way that we work today because our earlier work was much more typical of consulting in that we were brought in to answer some question. We have this problem. Tell us how we should fix it. We would go away. We would think about it. We’d come back with these beautiful PowerPoint documents and these great bulletproof charts and you’d say, “Here’s the solution, thank you very much. We’ll see you later.” And we’d go and leave it to them to figure it out. And we quickly realized that that wasn’t enough. Those PowerPoint documents end up collecting dust on the shelf instead of actually having any impact in the organization. And we also have, you know very few of us come from a traditional business or consulting background. Most of us have more of a — we have a handful of developers front end, back end, software developers, engineers by trade. And so even though we act as strategist, I think it’s baked into our DNA that we actually want to get our hands dirty a little bit. So we’ve tried to structure our engagements to be more imbedded and more about quickly, in an agile sense. We have a really well informed intuition about how this could be improved. Let’s start working in that new way. Let’s start creating some kind of solution that we can test and validate as quickly as possible. And then adjust and move on from there. And so a lot of our work today is about creating conditions to work in that way. And sometimes that means in a classic Clay Christensen innovators dilemma approach creating some kind of independent team that is kind of siloed from the rest of the rest of the organization who is given the authority and the autonomy to explore new spaces. We’ve done that approach. We’re also doing more things that are more tied in to existing structures and sometimes reorganizing a group or a division to work in a new way. So if they were functionally structured before we might look to something like the scaling agile at Spotify approach and say all right this is a relatively scaled organization. They have a pretty big complex product that serves a lot of users. And it can be broken down into a lot of component. You have the radio and you have the play lists and you have recommendations. You have all these different aspects and they structure around those user needs and that’s a good source of inspiration so we can take — we help clients think about how they could reorganize their structures and put together more cross functional or cross disciplinary teams to focus on user needs rather than some HR construct that was set up 20 years ago.
23:05 DK: Fascinating. Thank you for that. That’s juicy for me. It excites me, that kind of conditions versus sustainability.
23:13 Mike: It’s not easy. That’s definitely the hardest part.
23:16 DK: But that’s why it’s so important right?
23:18 Mike: Yeah, exactly.
23:20 DK: So let’s end this interview with a brief kind of insight from you in terms of what’s exciting and new out there? Who’s doing amazing work, rather it be a brand or just even a consultant or an offer? What’s making your eyebrows go north?
23:35 Mike: Yeah well I mean we’re really excited to kind of see what we’re thinking of as responsiveness or the responsive organization. There’s this ideal of a responsive organization and we see companies like Valve, like Ev Williams and Medium who are fully embracing or testing out these new ways of working. Zappos would be another one. So it’s kind of like this legitimization of these new ways of working and it’s getting more publicity. So that’s really exciting to see. But then on the other side we’re seeing more and more kind of compatriots who are kind of carrying this and kind of brining it to more organizations. And regardless of how it’s articulated there are a handful of companies, like a small group called Third Wave in Berlin, some really, really sharp guys that we admire a lot and do very similar and great work. There’s London Strategy Unit and Made By Many who are both based in London. Made By Many we’ve known for a while and have tremendous respect for what they do. We always laugh about Made By Many because we seem to be on the exact same wave length but they’ve always come at it — their background is much more on the making and developing side of things and our background is more on the strategy and planning side of things. So we’re kind of coming at it from two different directions but we always seem to arrive at the exact same approach. So we like those guys a lot. There’s also a website called Responsive Org, I think its responsiveorg.com. We can double check that afterwards but it’s a good kind of repository of a lot of thinking on this subject.
25:59 DK: That’s great. We’ll check them out and check into some notes (phonetic). Mike I really want to appreciate you giving your time. It’s really insightful and thank you.
26:09 Mike: Yeah my pleasure. Thank you so much for having me.
26:12 DK: That was the second Defining Innovation podcast. Thanks for listening. You can follow Mike on Twitter. He’s on Mike Arauz, that’s M-I-K-E A-R-A-U-Z. Please follow up on justadandak.com, that’s J-U-S-T-A-D-A-N-D-A-K.com. Leave us a message if you think I should be interviewing anybody who should get the Defining Innovation podcast treatment. I love that interview. I love what they were saying about being adaptive and eager to change. That is driving what they do with their clients. Please check out Undercurrent on undercurrent.com. Say hi when you give them a shout from me and we’ll catch you next time on the Defining Innovation podcast.