The big coefficient vs a new reality

vlad —  July 2, 2013 — Leave a comment

New reality

Image credit

The Big Coefficient vs a New Reality is a way of categorising disruptive agents/technologies within any market. I came across the terminology/concept in Scott Page’s Corsera course on Model Thinking.

In this post I’ll go through the definitions and examples of each that will hopefully challenge the way you evaluate ideas (it certainty has for me).

The big coefficient

For every complex problem there is an answer that is clear, simple, and wrong. (H.L. Mencken)

When optimising for the big coefficient you look to identify an independent variable that has the largest causal relationship (coefficient) with outcome you’re trying to achieve e.g. the longer someone spends looking at a product page, the more likely they are to purchase the item (expected outcome).

To optimise for the big coefficient you need to:

  • Construct a model of the variables involved in producing your expected outcome
  • Gather data to measure the outcome in a real world scenario
  • Identify the key variables the one/s with the biggest coefficient
  • Change the variable/s optimise to the big coefficient

This is a powerful methodology as you’re using evidence-based decision making to drive your actions (the part where you change the variables). Indeed the big coefficient has had much acclaim in management strategy with popular systems like Six Sigma ingraining the discipline to be laser-focused on optimising the big coefficient.

A new reality

The best way to predict the future is to make it. (Alan Kay)

The issue with big coefficient thinking is that your ability to think out of the box is heavily diminished meaning so too is your ability to disrupt. In order to disrupt you need to fundamentally change people’s behaviour. Therein lies the second portion of Page’s framing – the new reality. Within the new reality you give everyone free Healthcare rather than putting a bigger tax on smoking, within the new reality you drive cars rather than ride horses. The aptly named new reality allows us to change the world around us.

Past

Some examples of new realities in the past:

  • The iPhone completely changed human behaviour even though it received initial criticism from analysts for non-removable battery, no keyboard and low res camera.
  • Nintendo Wii created a new reality for the games and entertainment industry even though it was far less powerful than the leading console producers, PlayStation and Xbox.
  • Amazon AWS forever changed developer behaviour by leveraging existing infrastructure in an innovative way.

Future

There are several technologies that are currently gaining traction that offer the promise of exciting new realities to come:

Application

This framework for thinking becomes a powerful way to evaluate your strategy as you need to structure a given program differently based on the outcomes you expect. If you’re looking to make an existing asset work harder you need to optimise for the big coefficient and therefore you need an evidence-based approach to consistently optimising your output. If on the other hand you’re expecting to disrupt your market/competition you need to look at creating a new reality, this is a whole lot more tricky. It involves risk, trial, error and failure all great subjects for a new blog post 🙂

Advertisements

No Comments

Be the first to start the conversation!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s