Gary Flake recently announced the founding of MSFT Live Labs. I found his manifesto (via Richard McManus) for Live Labs to be an interesting departure to most “labs” or “skunkworx” groups within large corporatopns.

Philosophy & Strategy Ostensibly, the charter of Live Labs suggests a dilemma: How can we simultaneously be small and agile but also influential enough to have a meaningful impact? Indeed, this is a dilemma that all organizations face as they grow and mature. Our answer is embarrassingly simple: We are a perpetual startup within Microsoft, which carries three important implications.

First, we will deliberately not do many things that are already well-established within Microsoft. Instead we will seek to connect complements or to fill existing voids, so as to maximize impact for effort. Our bias will be to focus at intersections: between science and engineering, tactical and strategic, users and businesses, vertical and horizontal, short-term and long-term, internal and external, but above all - between problems and solutions. Like a startup, we seek to create entirely new value by making new combinations.

Second, all of our teams will be small, but with sufficient resources to make a modest level of success something that is completely within their own control (which implies minimizing some dependencies).

Third, when appropriate, we will opportunistically partner with other Microsoft groups to amplify their efforts as well as our own. We aspire to being positive agents of change across the company, helping to break down barriers, and expediting innovations - but on a scale that can only be realized by multiple teams with Microsoft working in concert.

Most labs takes the “northeast” approach to innovation . . . riskier, more disruptive innovation, and longer time horizon than typical product develpoment/management innovation process. As a result, the lab/skunkwork unit is usually as far away from core products & business as possible (without losing context/vision) in order to be able to innovate independently without the baggage of corporate scared cows. Distance from the mothership, in many ways, is hugely desired for both political and innovation sake.

Gary, however, is using a more strategic approach to innovation. . . 1) identify stakeholders, technology, strategies, and products, 2) Map all variables within a vector space (geek speak) 3) identify “whitespaces” 4) create solutions to fill in whitespace 5) add value by creating synergies.

For anyone that have taken an MBA course on innovation and read Innovator’s Dilemma, this is hugely sacriligious. For those that adhere to the Michael Porter’s idea of “strategy = trade-offs on the efficient frontier” this is also very disconcerting. Academics do not believe someone should be able to pull this off. To be able to innovate significantly while PARTNERING with existing legacy business units is close to impossible. Many have tried and gotten dragged back to the daily grind of politics, meeting earning estimates, and managing cannibalization.

BUT if you really think about it . . . this is the ONLY way to innovate relevantly. Too many innovation groups end up creating solutions to non-existant problems (nano blah?) OR solutions mis-understood by the mothership (Xerox’s anything in the 70’s). This is a very brave approach to innovation. . . to ensure relevancy while leaping toward step function changes . . . I wonder if this can work. . . I’m sure there are a few projects that does fit the definition . . . better ad serving algorithms, better presonalization, recommendation . . . anything that focuses on optimization of an existing business or product function could all possibly work . . . the key question than is: in the long run will these advantages remain “strategic” and sustainable. . . or algorithmic superiority will go the way of TQM - price of entry but not “strategic” as defined by Porter and eventually get competed away . . .

Do you think Total Quality Management was strategic when it was developed?

Not strategic in the sense that I use the word strategic.

“Strategic” is a word that gets used promiscuously—some people use it to mean anything important. Total quality management was a very important development, and provided an enormous advantage for Japanese companies initially. It is one of the reasons why they were able to produce products with such few defects. U.S. companies used to pride themselves on having good repair networks. Japanese companies came out with products that didn’t need to be repaired.

Total Quality thinking really was a breakthrough, but it is what I call operational effectiveness. It is a “best practice,” or something that every company should do.

“Strategy” is a term I reserve for choices—things a company does to set itself apart from others. So a strategic choice would be, “What customers does the company choose to serve?” A company that is not strategic serves whatever customer appears, or whatever need presents itself.

This notion of operational effectiveness vs. strategic positioning, is, I believe, fundamental to thinking about management. Companies must distinguish these two very different agendas, which present different organizational challenges.