Compounding improvement

Compound interest pays an investor interest on their interest, resulting in exponential growth in assets. Investors takes advantage of this arrangement to grow their wealth.

The analogy to learning and improvement

A similar principle pertains to learning and improvement. Mathematician and computer scientist Richard Hamming explains:

Knowledge and productivity are like compound interest. The more you know, the more you learn; the more you learn, the more you can do; the more you can do, the more the opportunity. I don’t want to give you a rate, but it is a very high rate. Given two people with exactly the same ability, the one person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime.
Richard Hamming

These rewards can accrue not only to individuals who commit to their own learning and improvement, but also to teams and organizations. In the case of these groups, improvement time is also needed to improve as teams, just as a sports team practices both individual and team skills.

Regularity and frequency are key

The point of setting aside time each day is highly relevant. Daily or near daily application builds habit, routine, and momentum. Small successes can be savoured, and the pressure for a big breakthrough doesn’t fall on intense, infrequent sessions. Another metaphor: A child learning to play the piano (say) is best served by a small period of focussed, enjoyable practice on most days, rather than a big practice session at irregular intervals. In fact, by practicing regularly, that big additional session now becomes more valuable. This is almost exactly the same as the practice in Lean of kaizen (small, continuous improvements) being complemented by occasional kaikaku (large, radical change).

Rather than waiting until change becomes an unavoidable necessity — a crisis! — by practicing change all the time we develop our improvement muscles. Big changes are first attempted as a series of small ones, and when a big change is required that can’t be achieved incrementally, we are better able to cope with the ensuing shock. After a big change, further improvements will typically be needed to patch up the aspects of the change that did not pan out as anticipated, and people who are trained to spot opportunities and enact change will be well-placed to handle the situation with grace and competence.

To reap the rewards, you need to invest

Circling back to setting up and managing a virtuous cycle of improvement, the first question is, “What proportion of your, your team’s, or your teams’ time will you regularly set aside for learning and improvement activities?”. If the answer is zero, there will be few improvements, no improvement cycle, and no exponential returns. In the short term, there will be more productivity, but effectively you are running down the asset, a short term strategy that also saps morale and reduces resiliency.

Beyond having the wisdom to regularly and frequently set aside time to learn and improve — even when there are lulls in observable improvement or there is pressure to devote every waking moment to an immediate objective — there are several other key factors in setting the stage for compounding improvement:

Selection of what to focus on.
Understanding how to learn and improve.
Coordination of learning and improvement activities with other, parallel efforts underway elsewhere in the organization.
Managing priorities so that learning and improvement time is intelligently balanced against pressing demands and emergencies.
Managing the expectations of stakeholders with short-term priorities
Align incentives to support the balance between delivery and improvement.

I will discuss these points in more detail in future articles.

Conclusion

Just as an investor must set aside savings for investment to reap the fruits of compound interest, organizations that set aside time to learn and improve can reap the compounding effects of improving plus getting better at improving and improving on improvements.

These compounding effects can apply at individual, team, and organizational levels. At the larger scales, besides devoting time to improve, and skill in making good use of that time, management of the expectations of impatient stakeholders and alignment of improvement efforts are essential to effectively scale improvement. We turn to the scaling pattern in the next article.

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