Brands for the Chattering Masses

By KEITH SCHNEIDER
Published: December 17, 2006 NYT

HAPPY HOLIDAYS TO ALL!!

Although most of us do not deal with mass marketing, this article illustrates a potential, fundamental change in HOW TO gain consumer insights and may impact how we all do business in the future!


FOR many, many decades, successful branding — one of the corporate world’s holy grails — involved a clear set of rules. Produce quality goods at the right price. Frame the value in memorable messages seen by millions on television and in print. Then fine-tune the pitch by measuring sales and evaluating consumer responses through letters, phone calls, focus groups and surveys.

Nowhere have those rules been applied more effectively than here, the home of Procter & Gamble, which made a fortune turning Crest, Pampers, and Tide into must-have items on household shopping lists. But the branding game has changed radically, largely because of the myriad choices the Internet provides consumers and because of the economic influence of widespread Web pontificating, known as the blogosphere, which barely existed as a popular force until about four years ago.

As consumers eagerly post word-of-mouth commentary in online communities, message boards and Web logs, a straightforward question confronts brandmeisters: Who wins and who loses as time-tested practices of mass production and mass marketing are undermined by the informed and often cranky voices of the knowledge age?

A possible answer to that question can be found here, on the fourth floor of a 19th-century brick and stone building on Main Street, in the office of Nielsen BuzzMetrics. The company, an A. C. Nielsen unit formed this year in a merger of three smaller companies, asserts that it has welded together technology, communications and business expertise in a new way; in essence, it can gain access to the electronic musings of millions of people to learn about the values, desires and opinions that start marketing trends. Essentially, BuzzMetrics represents the entrepreneurial convergence of brand- and online-business specialists holding M.B.A.’s — several of whom trained at Procter & Gamble — with computer scientists who say they are building the digital equivalent of a crystal ball.

BuzzMetrics’ computer scientists and programmers, led by Sundar Kadayam, a 43-year-old software engineer, say they have developed sophisticated search engines to sweep the Internet and drill down into rich veins of extemporaneous word-of-mouth commentary and conversation found online.

The search engines retrieve phrases, opinions, keywords, sentences and images, and the company runs the data through processing programs powerful enough to sift millions of messages simultaneously. By analyzing vocabulary, language patterns and phrasing, the programs determine whether comments are positive or negative, and whether the authors are men or women, young or old.

“The days of sitting behind the focus-group wall are going the way of the buggy whip,” said Mike Nazzaro, BuzzMetrics’ president and chief operating officer. “We are fundamentally changing the way marketing and market research will be done in the future. We’re providing guidance to marketing decisions that was never possible.”

BUZZMETRICS maintains that blogs and their attendant message boards and forums are tuning forks for consumer sentiment that threaten to upend traditional branding efforts. An influential blogger can undermine a brand faster than any grapevine ever before encountered in the marketplace, as the computer maker Dell discovered. The company’s level of service and quality was denounced by bloggers this year, and the complaints found broad exposure when one popular media site added its critical voice.
At the same time, positive word of mouth magnified by the Internet can be a boon, as Toyota discovered with its hybrid Prius sedan, which has been praised by admirers on sites created just for that purpose.

“There are winners and losers,” said Paul M. Rand, a partner and the global chief development and innovation officer at Ketchum Public Relations. “Companies adapt or go to the bottom. Consumer-generated content on the Internet is a complete disruptor. It forces companies to work smarter and listen harder.”

Marketing executives, awakened to both the threat and the potential, are scrambling to harness data culled online. BuzzMetrics, a pioneer in trolling for brand awareness on the Web, is still a tiny company: it says its revenue for 2006 will be about $20 million. For now, it occupies a sweet spot in a promising new industry, but should search giants like Google move more aggressively into its market, BuzzMetrics may find the going tougher.

“Search is at the core of everything Google does and we are more committed to improving search than ever before,” a Google spokesman said in an e-mail message. “We will continue to innovate our search technology to provide users with the fastest and most relevant search experience on the Web.”

For the time being, say analysts at Forrester Research and Jupiter Research, BuzzMetrics is at the front of its field. In a report published in September, Peter Kim, a Forrester analyst, said that brand monitoring appears poised for enormous expansion as companies shift priorities and resources in the $12-billion-a-year market research business. Emily Riley, an advertising analyst at Jupiter, predicts that companies will double spending on brand monitoring in 2007.
Among BuzzMetrics’ competitors are Umbria, based in Denver; Cymfony, in Watertown, Mass.; BrandIntel, in Toronto; Biz360 in San Mateo, Calif.; and MotiveQuest, in Chicago.

A “brand association map” drawn from online commentary about Nike, as compiled by Nielsen BuzzMetrics. Such maps aim to discover patterns in consumers’ opinions about particular brands.

MORE ON MARKETS AND INDUSTRIES
Building off the last posting, it is important understand the markets you want to participate in and the industries that serve them. An excerpt from a great book, Why Firms Succeed by John Kay (Oxford Press), sheds more light on this issue:

Markets are:
Based on customer needs
Characterized by the “law of one price”
Usually local
Industries are:
Determined by supply conditions
Based on product/production technology
Defined by the markets chosen by firms
Often global

You have to understand how to play in each category – industry participants can be categorized by strategic groups of competitors (global, leading edge, low cost, etc) which then often dictate how you will compete in the local markets. In many instances, you can be a global supplier competing against local competition. John Kay’s guidance is:

“The activities in which a firm's distinctive capability can offer a competitive advantage can be related the all the above in the markets and industries……the primary focus should be on identifying those markets in which it can effectively deploy its distinctive capability”


The example of GM competing in the local China market for their high end Cadillac is a good example of the issues to be considered.

Of GM's Future
By GORDON FAIRCLOUGH November 17, 2006; Page B1, WSJ

BEIJING -- A sleek Cadillac sedan created to tap China's burgeoning market for luxury cars is also General Motors Corp.'s poster model for new-car development as the company tries to slash manufacturing costs while at the same time tailoring its automobiles to fit local tastes.
The Cadillac SLS -- which will be in the spotlight here tomorrow at the Beijing Auto Show -- has been stretched to provide more legroom for rear-seat passengers, since many wealthy Chinese ride in chauffeur-driven cars. Its upright chrome grille presents a more formal silhouette than its sportier North American counterpart. And the interior of the SLS, which will start at $62,500, is more plush, with wood paneling, reclining back seats, indirect lighting and flat-screen televisions (meeting the needs of the local market).

But underneath, the car is nearly identical to Cadillacs built for the U.S. and Europe -- with the same chassis, engine, transmission and other key components -- helping GM to save money by buying parts in bulk (global industry issues)

As GM and other major car makers fight to survive in a fiercely competitive global marketplace, they are struggling with competing priorities: tweaking vehicles to appeal to the local market, while at the same time trying to wring costs out of manufacturing by hewing to common standards (the dilemma)

"We're trying to strike a balance between global economies of scale and local-market adaptations," says Raymond Bierzynski, GM's head engineer in China.

Unfortunately, GM has not always taken this local market approach. The following an article that appeared last March in the WSJ on their efforts to penetrate the South Florida market with their luxury Cadillac SUV

Lost in TransmissionBehind GM's Slide:Bosses MisjudgedNew Urban Tastes
Local Dealers, Managers TriedAlerting Staid Bureaucracy;Marketing Goes Off Course
Trying for a Revival in Miami
By LEE HAWKINS JR.March 8, 2006 WSJ

In December, General Motors Corp. ran a series of ads across the U.S. showing Cadillacs being driven in snow. The decision to do so was made by the giant car maker's executives in Detroit, where on Christmas Day, temperatures hovered just above freezing.

The ads also ran in Miami, a vibrant car market where GM has bombed for the past 15 years. As Christmas dawned, temperatures there started climbing into the high 70s.
GM is struggling under a financial burden created by monumental pension and health-care obligations. But it's also having a hard time persuading Americans to buy its cars. One reason: GM's cumbersome and unresponsive bureaucracy, the one that ran the snow ads in Miami (we have hurricanes but not snow in South Florida), has for years failed to connect with the tastes and expectations of consumers outside the company's Midwestern base.

In Miami, where no GM car is a top seller, GM started bilingual advertising much later than its rivals. Some of the ads it did run were duds. One wooed Miami's mostly Cuban-Hispanic population by showing a woman in a Mexican dress standing in front of the Alamo as GM Saturns raced around her (this had a huge, negative impact on the Cuban community). Another was built on the theme "Breakthrough" -- a word that doesn't have a direct Spanish translation.

YOU HAVE TO THINK LOCAL WHEN DEALING IN MARKETS!!

MARKETS VS. INDUSTRIES --Natural Competitor
How Whole Foods CEO Mackey Intends to Stop Growth Slippage;
By STEVEN GRAYWSJ, December 4, 2006; Page B1

This article (an interview by the WSJ) takes the concept of “organic” growth to a new level. It is an excerpt of the growth story of Whole Foods, the leading retailer of “organic” foods.

The key point I want to highlight is the importance of understanding the difference between the industry you participate in and the markets you serve. In MDG, we drive businesses to define their “Addressable Market Space” and then challenge them to expand it (for our alumni, this is the “brown vs. green box” discussion). The logic is that you need the space to grow and defining your addressable market space too tightly will unnecessarily restrict you (for our alumni, remember the Wawa example).

The problem we constantly encounter is that people define their markets by the industry they are in. As pointed out in this article, many of us participate in global industries but serve very local markets. Confusing them can be disastrous. Think of how you define your business in terms of industries and markets and then challenge yourself if it is defined properly. Do you have different competitors in the two categories? Are you organized to win in both environments?

It is also a illustration of how difficult it is to maintain growth momentum......

AUSTIN, Texas -- Since its founding here in 1980, Whole Foods Markets Inc. has pushed organic asparagus and cage-free eggs into the mainstream. With sales last year of $5.6 billion at 189 stores, it has redefined the American grocery experience on its way to becoming the world's largest organic and natural grocer. Lately, though, the highflying company has lost altitude, raising questions about who will define the next step in the evolution of organics: Whole Foods, or a mass-market retailer like Wal-Mart Stores Inc.?

Last month, Whole Foods presented an unusually grim portrait to investors, projecting same-store sales growth in fiscal year 2007 of 6% to 8%, down from 11% in 2006 and a peak of 14.9% in 2004. While most other retailers can only dream about that pace of growth, for Whole Foods, it represents the first significant sales bump after years of fast, steady growth. On Nov. 3, the company's stock tumbled 23%...............

WSJ: Is the natural and organic movement a fad and is it fading?

Mr. Mackey: Something that's been going on for 30 years is hardly a fad. For people who are really interested and committed to an organic-food lifestyle, it's not a fad for them any more than Christianity is a fad for Christians, or Judaism is for Jewish people. It's a value system, a belief system. It's penetrating into the mainstream. I don't see that disappearing anytime soon..........

WSJ: Is the market saturated? Is that why your same-store sales are growing more slowly?

Mr. Mackey: Same-store sales are lower for a multiplicity of reasons. Greater competition. There's cannibalization. I read about the slowdown with the consumer, they're spending less. Is there saturation? Certainly, some of our markets have more stores than others. We've had three consecutive years of double-digit same-store sales growth and our sales per square foot are $900. It's harder to raise the bar if you keep raising it. You can't compound at the same rate. No retailer ever does………..

WSJ: How much autonomy do individual stores have and why?

Mr. Mackey: Competition is on a local basis. And this is a reason to be decentralized. The basic philosophy is, we have a culture of empowerment. If it's a globally sourced product, like private-label, then we'll want team members to sell that in the store. We also allow each store to customize its product mix. If you go to the Austin store, there will be all kinds of small, local producers and vendors -- from salsas to tofu to tabbouleh to hummus, to hundreds and maybe thousands of products that are unique to that store. There'll be local tomatoes that we might sell in an Austin market, and certainly not in Chicago. It's the team leaders making those decisions.

We're being more aggressive on price. If [a competitor carries] the exact same product, then we're going to sell it at a matching or lower price. Those are decisions being made locally. We've got 189 stores. They're all faced with their own unique competitive environments. It's not necessary for me to know everything that's going on everywhere. I could find out, if there's a reason.

Wake-Up Call for the iPod
Apple's Hot Digital PlayerFaces Holiday CompetitionFrom New Wave of Handsets
By LI YUANWSJ, WSJ, November 30, 2006; Page B1

In our last blog posting, we talked about the challenge of a new comer—Microsoft’s Zune—to penetrate against a strong incumbent—Apple’s iPod. Here is another twist to this fabulous story that is evolving right in front of us. Apple’s iPod, clearly the category leader of digital, portable music, is confronting a new competitor that offers potential advantage that they will have to meet.

The following is an expert from the WSJ that describes the potential power of “Integration Innovation” – integrating digital music with the cell phone. We talked about this form of innovation in our November Exec Ed class that can lead to a fundamental shift in any industry when the integrated parts have significant new value vs. the components taken separately (examples we used were SAP and Microsoft’ Windows Operating System). We discussed the importance of categorizing different types of innovation (we defined 10) as a way of generating new ideas or concepts. The fundamental driver is creating competitive separation.

Now the article...

Wireless carriers are offering a huge array of gadgets that combine both functions, with a variety of shapes and sizes and growing music libraries. The new dual-function handsets are often low-priced, and sometimes free, with a two-year service contract.

Tim Woolsey, a home-schooled 10th-grade student in Katy, Texas, for example, renewed his contract with Cingular so he could get a Sony Ericsson Walkman phone at the reduced price of $100. He's planning on transferring about 400 of his favorite songs to it from the iPod he got last Christmas. "I carry my phone with me wherever I go," he says. "But I don't always have my iPod with me." (ENHANCING THE CUSTOMER EXPERIENCE – CONVENIENCE)

Indeed, the rollout of the new phones sets the stage for an epic showdown between handset manufacturers and Apple Computer Inc., whose iPod dominates the digital-music player market. Apple is rumored to be working on a combination music player and phone to compete with such devices. Earlier this month, a report in The Commercial Times in Taipei said that Apple has ordered 12 million iPod phones from Hon Hai Precision Industry Co., a Taiwan-based manufacturer that makes iPods. An Apple spokesman says the company doesn't comment on rumors and speculation.

In any case, the growth potential of the music phone market makes it hard for Apple to ignore. While Apple has sold more than 60 million iPods globally, there are over two billion cell phone users in the world, and analysts believe that close to one billion cell phones will be shipped in 2006 alone.

"The growth rate of music phones will be much faster than iPod mainly because consumers will always need a phone, and it only takes them a short period of time to explore the features," says Suzanne Cross, head of product marketing in North America for Sony Ericsson.

Cellphones that double as music players are already posting strong sales around the world. Sony Ericsson, a joint venture between Telefon AB L.M. Ericsson and Sony Corp., says that it has sold 15.5 million Walkman music phones in a 14-month period ended in September. Motorola Inc. said in its third quarter earnings call that it shipped 15 million high-quality music phones in the past year. Nokia Corp., the world's largest handset maker, says that it is aiming to sell 80 million music phones in 2006, making the company the world's largest manufacturer of digital music-players.

Some phones, such as the three Cingular phones from Motorola, can tap into the iTunes music store, which features 3.5 million tracks (BUILDING THE PLATFORM). Phone companies are bulking up their offerings as well. Sprint Music Store offers one million songs and Verizon's proprietary music service called V Cast Music has 1.5 million songs. Cingular has partnerships with some of the biggest online music services, including Napster Inc., Yahoo Inc.'s Yahoo Music and eMusic, which have 1.4 million to more than two million songs each. Cingular's customers can subscribe to those services and use them on their phones. Sprint Nextel Corp. says that it has sold more than eight million songs from Sprint Music Store since November 2005; at $2.50 per download, users get one copy on the phone, another on PC. Verizon Wireless charges $1.99 a song for dual delivery to both phones and PCs. Its customers can also pay 99 cents a song online, and then load them to their phones for free. ……….

Verizon Wireless and Cingular even offer a feature that will let a user hold his or her phone up to a speaker playing a song and then match the song against their music database. If the song is available, it will offer the user the option to buy the song by clicking on a link. (ENHANCING THE CUSTOMER EXPERIENCE).

You can see the challenge Apples has even from their position of strength. Consider the challenge Microsoft faces as a new comer with no fundamental difference vs. the iPod. Consider the strength of a platform that can bring consumers access to phones, e-mails, the internet, music, video, etc. all in one device!

THE INNOVATION RADAR

One of the important things we drive in the Market Driven Growth process is that a great product or service in itself does not mean success. A company has to build an entire Business System around its offering to make it work. We use the methodology developed by Sawhney and Wolcott to "force" businesses to think through all the major issuse using the Innovation Radar ("....business innovation is far broader in scope than product or technological innovation. In fact, a company can innovate along any of 12 different dimensions with respect to its (1) offerings, (2) platform, (3) solutions, (4) customers, (5) customer experience, (6) value capture, (7) processes, (8) organization, (9) supply chain, (10) presence, (11) networking, and (12) brand" http://sloanreview.mit.edu/smr/issue/2006/spring/14/).

Microsoft's challenge in combating Apple's iPod touches on issues in all the axes. This example talks about four of them.

This first artcile presented below appeared in July of this year prior to the formal Zune announcement. The second article was published yesterday summarizing the initial reaction of the market to Zune.

CHALLENGES FACING A NEWCOMER -- THE ZUNE CHALLENGE EMERGIC.org - July 24, 2006 Microsoft's Zune News.com writes about the new device and service which will rival iPod and iTunes: Michael Gartenberg

........The initial Zune device will have Wi-Fi and use a hard drive to store music, Microsoft said. Stephenson's statement also lent some credence to speculation that the company's player will use wireless connectivity to share music with other Zune devices.

So what's the challenge? Essentially there are three things.

Creating a technically competent challenger (Offering) - Arguably this is the easiest thing for them to do. Apple's shown the way on what features the market wants. Less obvious are how Microsoft will differentiate with features like WiFi, that few mainstream consumers want and serve as a something that not only boosts for the bill of materials but also kills important features like battery life. Good news is the focus is on music and video.

Creating a lifestyle device (Brand and Customer Experience) - Microsoft is clearly going to face a battle here. It's good that they're building a unique brand and following the Xbox tradition, distancing themselves somewhat from Microsoft identity but that's not enough. Zune isn't a bad name. It's going to be hard for them to create the same level of cachet that Apple has with the iPod.

Creating a platform(Platform)- iPod is more than a single device. It's a platform in and of itself with a whole eco system of cases, car kits, speakers and docks. No doubt that MSFT will work hard to make sure that they fill some of the gap directly with first party stuff, but this is one area where consumer choice goes a long way in making the platform a success.

Here is what was in yesterday's WSJ..... Microsoft's ZuneFalls Off Sales PaceFor Media Players By CARMEN FLEETWOODNovember 28, 2006; WST, Page B2

Top 10 selling list for electronics yesterday, seven of the 10 products were digital media players. Nowhere did the Microsoft Corp. or Zune names appear. "That's a pretty good indicator of consumer interest," Michael Gartenberg of industry group Jupiter Research said yesterday, one of the busiest days of the year with online shoppers.

The 30-gigabyte Zune player from Microsoft, which retails for $249, was on the Top 10 list of Amazon, the largest Internet retailer, for several days after its release on Nov. 14 before dropping off. But yesterday, the most popular model of the Zune, the black version, was at No. 76. The Top 10 digital media players included six iPods from top-seller Apple Computer Inc. and one MP3 player from SanDisk Corp. The 30-gigabyte iPod has a $249 list price and ranked No. 2 at one point yesterday. "The product [Zune] wasn't particularly attractive. At the end of the day, you put it on a shelf and it just didn't compare," said Rob Enderle of research firm Enderle Group.

Microsoft has noted the Herculean effort it would take to overcome the lead Apple has built up in the digital media market in five years since the introduction of the iPod. Microsoft is trying to build up a total ecosystem with the product and the Zune Marketplace music Web site in order to compete with Apple and its iTunes store. Sales of Zune in the first week after the Nov. 14 launch were "exactly within our expectations," a Microsoft spokeswoman said. She added that she is still awaiting information for holiday weekend sales.

Analysts say the Zune is more likely to snag market share from other digital media players instead of Apple this holiday season. ........... Zune received accolades for its built-in wireless capability and ability to share music with other Zune users for three plays, something not available in the iPod . A larger screen than available on the iPod and a built-in FM radio were noted as positives for the Zune, which is also available in white and brown (Some Offering features seem sound). Critics found the Zune Marketplace, where Zune owners must buy their music, confusing. Also, the Zune is incompatible with Apple's iTunes store (Customer experince is critical). The Zune doesn't support podcast audio programs nor can it transfer television and video programs from Microsoft's Media Center. Others have faulted the lack of videos available on the Zune Marketplace site, and the device's heavier weight and shorter battery life to an equivalent iPod were negatives to consumers seeking to purchase an MP3 player.(These are some real negatives. What good is a larger screen if you do not have videos).

The importance of looking at the whole system is critical!!!!

Recently, Business Week Online posted an article highlighting the results of a Booz Allen Hamilton study entitled, "Global Innovation 1,000." The article is worth reviewing; however, the most telling lesson from the article is that neither the smart people at Booz Allen (and they are quite sophisticated) nor the well-informed editors at Business Week noted that both the study and their article focus specifically, and to a fault, on R&D investments, patents and innovation. This myopia is the source of the unsatisfactory results. See the article at:

http://www.businessweek.com/innovate/content/nov2006/id20061114_428152.htm?chan=innovation_innovation+%2B+design_top+stories

The study offers another example of what we've been saying for a few years now-- that innovation is about more than technology, products and R&D. Moreover, it validates that VERY few firms, people, consultancies, researchers, journalists, policy-makers 'get it'.

The results of the study show little to no correlation between R&D spending and corporate performance, or even innovation performance along some metrics like patent output. This comes as no suprise to us, nor to all of our Organic Growth alumni. We know at least a few reasons why R&D spend is not a good predictor of innovation success. Ultimately, innovation requires the development of complete business systems, based on offerings with solid value propositions that add real value for which customers are willing to pay. R&D plays a role in this equation, but it is by no means the lead. In fact, in many highly innovative companies, traditional R&D plays a limited to even non-existent role in driving success through innovation. The fact that the Booz Allen study failed to account for these other factors in its study design provides an explanation for why the study resolved the way it did. Even the researchers' apparent confusion over these results becomes much clearer in this light.

The Booz Allen analysis of the study appears solid, though narrow in focus, as the study design itself appears narrow. At the end of the article, the author shares some of the open questions regarding how to make innovation work. These relate to integration versus separation from the core businesses for innovation initiatives.

We believe our Corporate Entrepreneurship research offers solid answers to some of these questions. You'll hear more in this regard over the next few months.


To the Future, Robert C. Wolcott

A Hospital RacesTo Learn LessonsOf Ferrari Pit Stop Auto Crew Teaches SurgeonsSmall Errors Can Add UpOn the Track, or in the ICU
Dr. McEwan as 'Lollipop Man'
By GAUTAM NAIK, WSJ November 14, 2006; Page A1

Our Driving Organic Growth executive education class was a great success! The participants again marveled of how we integrated Kellogg’s intellectual capital with the market proven process Market Driven Growth. They reinforced the power of coming to the class in teams from the same company as they developed their own Growth Initiative Journal, a tool designed to apply the class lessons to their own, immediate growth challenges. The class in May (14 to 17th) is starting to fill up!

As a pure marketing effort to the KIN members who have not attended the course, here are a few quotes that we were given permission to replicate...

“At last, a practical approach to growing innovation cultures within our organizations! Real tools coupled with keen insights presented by world-class practitioners. This is a high-water mark in executive education!” – Director of Strategic Planning, Raytheon

“This was an excellent program that married the rich experience of a world class practitioner with the intellectual power of top notch academics. A winning combination.” -- Partner, RPOptions Management Consultants

“This class helped create a process by which to identify, prioritize, develop and grow new business opportunities in a way more likely to integrate into my company.” -- GM & DVP, Automatic Data Processing

One of the students pointed out this article that is a great example of getting ideas from very different sources...........

LONDON -- After surgeons completed a six-hour operation to fix the hole in a boy's heart, Angus McEwan supervised one of the more dangerous phases of the procedure: transferring the fragile three-year-old from surgery to the intensive care unit.

Thousands of such "handoffs" occur in hospitals every day, and devastating mistakes can happen during them. This one went off without a hitch, thanks to pit-stop techniques of the Ferrari race-car team.

"It was smooth. We didn't miss anything," said Dr. McEwan, a senior anesthesiologist at Great Ormond Street Hospital for Children. His role as leader of the handoff was partly modeled after Ferrari's "lollipop man," who uses a large paddle to direct drivers to the pit.

In one of the more unlikely collaborations of modern medicine, Britain's largest children's hospital has revamped its patient handoff techniques by copying the choreographed pit stops of Italy's Formula One Ferrari racing team. The hospital project has been in place for two years and has already helped reduce the number of mishaps.
The challenge of moving a patient to another unit, or to a new team during a shift change, is an old one. In 1995, one man in Florida had the wrong leg amputated after a flubbed handoff. "If you transfer a patient to the ICU after surgery and the ventilator isn't ready, you're really riding on the edge" of patient safety, says Allan Goldman, head of the pediatric intensive care unit at Great Ormond Street Hospital and a chief architect of the hospital's collaboration with Ferrari.
A 2005 study found that nearly 70% of preventable hospital mishaps occurred because of communication problems, and other studies have shown that at least half of such breakdowns occur during handoffs………….

One Sunday in 2003, after a particularly tough day in the operating theater, Dr. Goldman and surgeon Martin Elliot slumped before a TV set and watched a Formula One race unfold. Both were racing fans, and they noticed striking similarities between patient handovers at their hospital and the interchange of tasks at a racing pit stop. But while a 20-member crew could switch a car's tires, adjust its front wing, clean the air vents and send the car roaring off in seven seconds, hospital handovers seemed downright clunky by comparison.

The duo invited members of McLaren, a British team that fields race cars in Formula One contests, to provide insights into pit-stop maneuvers. Armed with videos and slides, the racing team described how they used a human-factors expert to study the way their pit crews performed. They also explained how their system for recording errors stressed the small ones that might go unnoticed, not the big ones that everyone knew about.

That point struck a chord with Dr. de Leval. He immediately saw that pit-stop handovers were successful precisely because of an obsession with tiny mistakes, a conclusion similar to the one he had reached in his 2000 paper about arterial-switch operations…………..

In early 2005, Dr. Elliot, Dr. Goldman and Mr. Catchpole traveled to Ferrari's headquarters in Maranello, Italy, and sat down with Nigel Stepney, the racing team's technical director. As a test car roared around a nearby track, the visitors played a video of a hospital handover and described the process in pictures.

The Ferrari man wasn't impressed. "In fact, he was amazed" at how clumsy and informal the hospital handover process appeared to be, recalls Mr. Catchpole, now a researcher at Oxford University.

In that meeting, Mr. Stepney described how each member of the Ferrari crew is required to do a specific job, in a specific sequence, and usually in silence. By contrast, he noted, the hospital handover was often chaotic. Several conversations between nurses and doctors went on at once. Meanwhile, different members of the team disconnected or reconnected equipment to a patient, but in no particular order.

In a Formula One race, the "lollipop man" with a paddle ushers the car in and signals the driver when it's safe to go. But in the hospital setting, it wasn't always clear who was in charge. Though the anesthesiologist had nominal responsibility to take the lead during a handover, sometimes the surgeon assumed that role -- or no one at all.

The crew at Ferrari trained for the worst contingencies. "If Michael Schumacher comes in five laps early because it's raining and he wants wet-weather tires, they're prepared," says Mr. Catchpole, referring to the Ferrari driver and seven-time world champion, who recently retired. The hospital team dealt with problems as they came up…………
Back in London, Dr. Goldman and his colleagues began to incorp

orate Ferrari's lessons, along with advice from two jumbo-jet pilots, into the hospital handover process. They wrote up a seven-page protocol describing every step in the procedure. Between December 2003 and December 2005, they also did a careful study to see if those changes made any real difference to patient safety………

After the changes, the average number of technical errors per handover fell 42% and "information handover omissions" fell 49%. It also took slightly less time to execute each handover, though, unlike the Ferrari team, the doctors weren't trying to speed up their process.

IBM to Fund Ideas Hatched in ContestWith $100 Million
By JASON DEAN WSJ, November 15, 2006; Page B10
BEIJING

A great example of open innovation. My challenge to all of you is why couldn't you do something like this at a scale approprite to your company.

Toby, do you have a reaction???

International Business Machines Corp. plans to invest $100 million over the next two years to fund business ideas generated by a world-wide innovation contest, Chairman and Chief Executive Samuel Palmisano said on a trip to Beijing.

The contest, which IBM called "InnovationJam," involved contributions from 150,000 people from 104 countries, including employees of IBM and 67 of its client companies. From the 46,000 ideas submitted, IBM will invest the $100 million to develop applications in 10 areas, including real-time translation services, three-dimensional Internet technology and electronic health-record systems.

Mr. Palmisano made the announcement at a meeting of IBM's employees in China, where the technology-services company has a staff of 8,300.

Michael Porter Asks, and Answers: Why Do Good Managers Set Bad Strategies? Published: November 01, 2006 in Knowledge@Wharton

Some great insights from the master……

Errors in corporate strategy are often self-inflicted, and a singular focus on shareholder value is the "Bermuda Triangle" of strategy, according to Michael E. Porter, director of Harvard's Institute for Strategy and Competitiveness. These were two of the takeaways from a recent talk by Porter -- titled "Why Do Good Managers Set Bad Strategies?" -- offered as part of Wharton's SEI Center Distinguished Lecture Series. During his remarks, Porter stressed that managers get into trouble when they attempt to compete head-on with other companies. No one wins that kind of struggle, he said. Instead, managers need to develop a clear strategy around their company's unique place in the market. When Porter started out studying strategy, he believed most strategic errors were caused by external factors, such as consumer trends or technological change. "But I have come to the realization after 25 to 30 years that many, if not most, strategic errors come from within. The company does it to itself."

Destructive Competition

Bad strategy often stems from the way managers think about competition, he noted. Many companies set out to be the best in their industry, and then the best in every aspect of business, from marketing to supply chain to product development. The problem with that way of thinking is there is no best company in any industry. "What is the best car?" he asked. "It depends on who is using it. It depends on what it's being used for. It depends on the budget."

Managers who think there is one best company and one best set of processes set themselves up for destructive competition. "The worst error is to compete with your competition on the same things," Porter said. "That only leads to escalation, which leads to lower prices or higher costs unless the competitor is inept." Companies should strive to be unique, he added. Managers should be asking, "How can you deliver a unique value to meet an important set of needs for an important set of customers?"

Another mistake managers make is relying on a flawed definition of strategy, said Porter. "'Strategy' is a word that gets used in so many ways with so many meanings that" it can end up being meaningless. Often corporate executives will confuse strategy with aspiration. For example, a company that proclaims its strategy is to become a technological leader or to consolidate the industry has not described a strategy, but a goal. "Strategy has to do with what will make you unique," Porter noted. Companies also make the mistake of confusing strategy with an action, such as a merger or outsourcing. "Is that a strategy? No. It doesn't tell what unique position you will occupy."

A company's definition of strategy is important, he said, because it predefines choices that will shape decisions and actions the company takes. Vision statements and mission statements should not be confused with strategy. Companies may spend months negotiating every word, and the results may be valuable as a corporate statement of purpose, but they do not substitute for strategy.

In the last 10 years or so, Porter added, companies have become increasingly confused about corporate goals. The only goal that makes sense is for companies to earn a superior return on invested capital because that is the only goal that aligns with economic value. Recently, companies have developed "flaky metrics of profitability," he said, pointing to amortization of good will as an example. Some of these measures began as a way for managers to stay a step ahead of the demands of Wall Street. "What starts as a game for capital markets then starts to confuse the managers themselves. They [then] make decisions that are not based on fundamental economics."

Porter said the "Bermuda Triangle of strategy" is confusion over economic performance and shareholder value. "We have had this horrendous decade where people thought the goal of a company is shareholder value. Shareholder value is a result. Shareholder value comes from creating superior economic performance."

To think that stock price on any one day, or at any one minute, is an accurate reflection of true economic value is dangerous, he noted. Research shows companies can be undervalued for years. Conversely, during the Internet bubble, managers whose motivation and compensation were tied to stock price began to believe and act as if the share price determined the value of the company. Managers are now beginning to understand the goal of their companies is to create superior economic performance that will be reflected in financial results and eventually the stock price. "We know there's a lag and it's ugly. But it's important that a good manager understands what the real goal is -- not spend time pleasing the shareholders."

Corporate strategy cannot be done without strong quantitative analysis, said Porter, adding that each year students take his strategy course thinking they will have at least one class in which they don't have to worry about numbers. Not true. "Any good strategy choice makes the connection between the income and the balance sheet."

The five founding principles that drive innovation
By Jonathan Schwartz, chief executive officer and president of Sun Microsystems.
Published: July 12 2004, Financial Times

I would like to welcome the soon –to- be alumni of the November 12 executive education class on Driving Organic Growth (this class was sold out and the scheduled May class is filling up). Please look at the blog site and view the August 31 posting to better undertand how our blog is organized

I think this is a great article with excellent insights.....

Innovation is the key to survival in this ultra-competitive and remarkably flat global economy. It drives profits and improves the human experience when it is done correctly. But true innovation is precious and elusive. Anyone can throw money around wildly and many companies do just that. But how do you get it to pay off?

The answer: a commitment to innovation that extends beyond the company's research and development budgets to include every person, practice and policy within the organization. True innovation – the kind that lasts and delivers tangible results – comes from channeling inspiration and creativity as often as it does from any R&D lab.

A recent analysis of the top 1,000 global R&D spenders by business consultant Booz Allen Hamilton found that, with few exceptions, there is no statistically significant advantage to exorbitant R&D spending. The conclusion? It is the process of managing the investment, not the expenditure alone that matters. Getting there, however, requires significant corporate soul-searching. You might have the most gifted technical minds on the planet. But it is successful management of that talent that determines whether your innovation investments flow to the bottom line or go down the drain. And it takes discipline and character to put your organization under an internal microscope, and courage and conviction to make changes to your business model and technology roadmap. With business cycles that are increasingly difficult to predict, harnessing innovation and managing genius has become an art form.

The global economy places greater value on economies of speed, scope and skill rather than simply economies of scale. This means innovation must be achieved by different departments and business units within the same organization working in parallel rather than in isolation as they often do in large corporations. It also means looking outside your organization to partners, suppliers and customers for new and innovative ideas. Breakthroughs most often occur when a variety of people with disparate interests and backgrounds focus on a shared problem or process.

At Sun Microsystems, we made a conscious decision to sustain our R&D focus – to the chagrin of many observers – while many of our competitors made cuts. We knew that the cornerstone of our recovery would be our ability to innovate. We also recognized this would not just require a financial commitment but also the discipline to manage, cultivate and, in some cases, make tough decisions to eliminate projects. And, perhaps more importantly, we channeled investments in parallel with our corporate DNA.

Here are some principles on which we built our innovation strategy: first, hire the best and let them lead you. Build and encourage a culture of leadership regardless of title or department and ensure there is communication and interaction between leaders of different departments and product groups.

Second, share. Create communities with partners, customers and business groups that allow collaboration and open innovation. After all, this is the "participation age". Third, create small groups and give them autonomy. Steering committees do not work. Create task forces with the ability to identify and create projects that matter. Bring in different voices in the brainstorming phase. If the same people are consistently bringing new ideas to the table, you probably are not being as innovative as you could be.

Fourth, allow public debate. Transparency of ideas and debate is always healthy but you have to know when the debate should end. Then move quickly to focus resources towards achieving the goals. Finally, have the courage to make hard decisions. At Sun, this was to invest when others were cutting and to drive increased focus in our engineering operations. It also meant querying what we were accepting as fact. What did we, as a company, believe implicitly?

These are the tough questions every CEO and executive team should ask and answer if it expects to become a truly innovative organization. In times of adversity, there is always a moment when good leaders step up and modernize products or processes while holding firm to the core principles that made the company relevant and successful in the first place.

Great companies and leaders pursue projects with dramatic potential, knowing that some will thrive and some will fall short. Innovation is a messy business. But a few dramatic successes can change the world.

Seven principles to launch leadership challenge
By Stefan Stern
Published: FT October 2 2006 16:17

This is a concise and insightful article on leadership. It was written in the context of the political dynamics in Great Britain but is pertinent to all of us. I edited it for your convenience.

How can the new prime minister avoid the mistakes made by his predecessor? And what lessons are there here for senior managers of all kinds who are about to embark on a new leadership challenge? Several key principles suggest themselves. Guess what? There are seven of them.

Make a strong start. “Leaders always face a clash of expectations,” says Michael Genovese, professor of political science at the Loyola Marymount University in Los Angeles. “It is important to hit the ground running, not hit the ground stumbling. If you prepare properly you increase the likelihood of early successes.” A strong start shapes the public’s perception of a new leader as a winner, and establishes the idea that this is someone who gets things done.

Draw on all the talents. Confident leaders are not afraid to surround themselves with the brightest people at their disposal, including potential rivals. “Hire as many capable people as you can, and then delegate as much to them as you can,” runs an old management saw.

Have clear objectives and prioritize them. “What are the two or three things that you really want to get done?” asks Prof Genovese. “Focus on them. You need to be disciplined, especially when events encroach on to your agenda. You have to react to events, but also be proactive at the same time.”

Managerial freedom. As Prime Minister, Mr Brown could end the excessive control from the centre exercised by Blair – if he can bring himself to do it. “This will be a hard test for someone who has such a firm command of policy detail,” says Graham Allen MP, one of the wisest observers of the UK parliamentary scene, and author of a pamphlet called “The last prime minister – being honest about the UK presidency”.

Just as large corporations have learned to give more power and authority to managers and teams close to their customers, the British prime minister needs to shed some of the enormous managerial burden he currently carries – having to answer questions, for example, on hospital waiting lists in far-flung corners of the country. “The new prime minister could release colleagues’ creativity and at the same time build a stronger organisation,” Mr Allen says.

Celebrate success. “. Successes must be acknowledged. Governments, businesses and organizations need to feel that they are making progress. “Success breeds success, and power breeds power,” Prof Genovese says.

Understand your weaknesses. Good leaders are aware of their weaknesses. Leaders) need to build a core of people around him who will tell it like it is

Be lucky. One thing that remains largely beyond the control of any leader is luck. “Leaders often feel that ‘the damn world keeps interfering with my plan’,” Prof Genovese says. But if you believe, like Seneca, that “luck is where preparation meets opportunity”, you may be able to do something about even this seemingly unpredictable factor.

Leadership is more difficult today than ever, Prof Genovese believes. Problems seem to be more complicated, more global. The lines of national sovereignty have been blurred. And yet the public wants fast, visible results. “Every day is election day in America,” he says.

Connecting the Dots between Innovation and Leadership --"Rifle-shot" Acquisitions
Published: October 04, 2006 in Knowledge@Wharton

This was a great article from Knowldege@Wharton covering among other things the issues between innovation from within vs. acquiring innovation. The panel moderated by Michael Useem includes:

- C. Robert Henrikson, chairman and CEO of global insurer MetLife,
- Alex Gorsky, head of Pharma North America and CEO of Novartis North America,
- Seth Waugh, CEO of Deutsche Bank Americas
- Connie K. Duckworth, retired partner and managing director at Goldman Sachs,
- Wharton professor of health care systems Patricia Danzon
- New York City developer Jeffrey Katz, CEO of Sherwood Equities, a major investor in Times Square
- Wharton finance professor Peter Linneman, founding chairman of Wharton's real estate department

The panelists were also asked whether it is better to buy business innovation through mergers or acquisitions, or build it from the ground up.

According to Waugh, it's always preferable to create new businesses internally because a homegrown enterprise is likely to fit better in the existing corporate culture. New growth from within also helps keep the organization flat. However, he acknowledged that in order to stay ahead of the competition, there are times when it is best to do a highly targeted "rifle-shot" acquisition if an opportunity fits well into the parent company's overall portfolio.

Henrikson noted that his company has a long tradition of internal development as a mutual company. When the firm went public in 2000, MetLife opened the door to the possibility of more merger and acquisition activity but, Henrickson emphasized, it's talented managers -- not necessarily acquisitions -- that drive innovation.

For Katz, build or buy represent two very different business strategies in the real estate industry. Katz is in the build-from-within camp. In order to grow, he encourages contrarian thinking. If a developer waits to see what the crowd is doing, it's too late, he said. To balance that risk, however, he also takes a conservative approach to business operations. Meanwhile, he stressed the importance of agility to reshape development plans over the months and years it takes to bring them to completion.

Gorsky again noted his industry's sketchy record when it comes to massive acquisitions. "The area where it does make sense is in complementary technology with new technology partners." He pointed to Novartis's acquisition of Chiron Corp., a biotech firm with a specialty in vaccine development and production, as an example of an acquisition that fits well with Novartis's broader strengths

DECISION MAKING

This will be a very brief posting.

The following quote from P.F. Drucker resonated in my brain as soon as I read it:

“An effective decision is always a judgment based on dissenting opinions rather than on consensus on the facts”



I have seen too many leadership teams strive for consensus on the facts rather than sharing their dissenting opinions. The former always leads to indecisiveness. Having and then using a set of Ballpark Decision Criteria helps structure the discussion to bring out the dissenting opinions.

The Revenue Growth Gap and the Danger of Hurdle Rates
research@imaginatik.com.

We have learned two important lessons in working with leaders when dealing with the specific performance gap imparted by their growth objectives:

0 Leaders routinely do not apply simple mathematics to their goals: they announce we will grow 10% per year top line but never do the math. A 10% increase for a $1Bn company means you need $100M of new revenue; for a $10Bn company, you need $1Bn!! The first thing we do in working with companies is ensure the leaders understand the scale of their challenge. It always amazes me how their eyes begin to glaze over when they see the math.

0 Creating decision criteria is critical-- we call them the Ballpark Decision Criteria. They should be clearly articulated and broadly disseminated throughout the company to create the conversation leaders want and to enable a rapid, transparent decision making. Leaders must wrestle with how they want their company to grow. As outlined in this article, a key component of the Ballpark Decision Criteria is the potential size of the opportunities. This article deals with this issue.

Refer to the August 6, 2006 positing on Whirlpool to see how they used the Ballpark Decision Criteria.

Now the article:

To achieve growth targets, most companies need to find new sources of revenue, either through expansion into new markets or developing new products. This can be a challenging task. 30 - 50% of commercial launches fail to reach their expected revenue and profitability goals, and only one in four development projects succeed (Source: R. G. Cooper (2001) "Winning at New Products: Accelerating the Process from Idea to Launch").

At the same time, industry consolidation has led to the creation of mega-enterprises who struggle to maintain the same growth rates as their smaller, more nimble competitors. The absolute numbers are staggering. A 5% target growth rate for a $400m company is $20m - high, but not unrealistic depending on the market. Companies like Procter & Gamble, however, face a more daunting task. With $40bn in 2002 revenue, they would need to generate $2bn in new revenue each year, equivalent to creating a company the size of Williams-Sonoma or Siebel Systems.

The Growth Gap (see Research Note on "The Innovation Gap") can be closed partially through standard business operations, such as expanding distribution, and through mergers and acquisitions (for example, P&G's recent agreed purchase of Wella AG will add $2.57bn annual revenue). However, studies conducted by Imaginatik Research have found that 25% and 50% of a company's target growth will need to come through innovation.

Apart from acquisitions, the main innovation-related approaches to closing the gap are either:

The Big Win
- A company embarks on a search for high impact winners that will cover the bulk of the growth target. P&G calculate that their very best new products typically generate $200m - $250m in the first year, which would mean that their 2003 goal would involve finding 2 large scale winners.

Portfolio of Smaller Winners
- A company creates a basket of opportunities with a mix of expected return, risk, resource requirement and timescale. The portfolio is optimized to deliver the highest overall return on investment, with an outside hope that at least one project in the portfolio will become a big win.
Companies tend to blend the approaches. The returns from a big win are significantly larger than a basket of small-scale successes. The pharmaceutical industry in particular has shifted its approach through the 1990s away from generic drug manufacture to the search for $1bn blockbuster drugs, with a fair degree of success.

The key to both concepts are hurdle rates: are the products or markets large enough for warrant serious consideration. Companies therefore put in place framing activities to spot large potential markets, and use the tools within the Innovation Pipeline to develop offerings to meet these needs.

However, the hurdle rate can create some perverse effects. A market may appear too small initially, and often companies cede such niche markets to competitors who are sometimes able to grow the small market into a much larger one (see "The Innovators Dilemma" by Clayton Christensen). Companies also tend to forget their history, and fail to appreciate that the leading products often took years before they gained market traction.

Companies need a range of approaches to closing the Revenue Gap and innovation plays a large part, particularly in organic growth. Fortunately there are many methods to help companies find these large scale wins, and develop a portfolio of opportunities that can potentially become the successes of the future.

Innovation Opens Up
IBM's Global Innovation Outlook - identifying and harnessing innovation opportunities and enabling the collaborations that matter
http://domino.research.ibm.com/comm/www_innovate.nsf/pages/world.gio.html

Mike Giersch, the Vice President of Strategic Planning at IBM was kind enough to share with us what IBM is doing in Open Innovation. In response to our last blog (IBM is a KIN member), Mike shared the IBM web site discussing their efforts. I wanted to reproduce it here to be sure you all saw it. I strongly recommend going to it and explore it more. I encourage others in our blog community to contribute their insights, experiences, best practices, or even questions they may have. After our next Exec Ed class for driving Organic Growth on 11/12/06, I will publish the list of companies in this community.


I read an interesting definition of an entrepreneur that I think is appropriate here. John Norberg, the author of “In Defense of Global Capitalism”, wrote an interesting editorial for the WSJ (10/02/06) titled “Humanity’s Greatest Achievement” citing the impact of entrepreneurs on the world. His definition is: “entrepreneurs are serial problem-solvers who search out inefficiencies and find more practical ways of connecting possible supply with potential demand”.

Open Innovation is the front of the entrepreneurial effort…….

Now to the IBM web site......

The nature of innovation is changing at a pace unheard of in modern history -- it is now increasingly open, collaborative, multi-disciplinary and global. And to reap the benefits of this evolution, an organization's processes and practices must adapt.

Enter the Global Innovation Outlook (GIO), where we have opened up our technical and business forecasting processes to include external leaders from business, academia, the public sector, NGOs and other influential constituents of the world community. The GIO takes a deep look at some of the most pressing issues facing the world and works toward providing solutions to those needs.

Now in its second iteration, the GIO has significantly expanded its efforts to seek the most fertile ground for innovation and attention, and is continuing to work with a wide array of participants to identify potential projects and initiatives to change business, society and the world for the better.

In 2005 and 2006, the GIO 2.0 gathered 248 thought leaders from nearly three dozen countries and regions, representing 178 organizations across four continents for 15 “deep dive” sessions to discuss three focus areas and the emerging trends, challenges and opportunities that affect business and society:
- The future of the enterprise
- Energy and the environment
- Transportation and mobility

Rather than thinking of these topics in terms of established sectors or vertical markets, the deep dive sessions approached them as broad, horizontal issues that could affect virtually every enterprise and organization on the planet.

The fascinating insights from these discussions will be released in March 2006 at two GIO Innovations Salons in New York City and San Francisco.

This initiative represents something that is uniquely IBM: A combination of world-class technology leadership and deep expertise in business and industry. Deep relationships with a broad range of clients, governments, universities and other ecosystem members around the world. A willingness to elevate the dialogue around important issues and examine the broad implications for the world.

To learn more about GIO 2.0, read the GIO 2.0 report, or ask your IBM contact for a copy and begin a conversation about what the changing nature of innovation means for you and your organization.

GIO 1.0

In 2004, over the course of 10 meetings in 24 days on 3 continents, more than 100 leaders from business, academia, government, and other organizations joined with IBM's top researchers and consultants to examine three areas that affect broad swaths of society and are ripe for innovation:
-The future of healthcare
-The relationship between government and its citizens
-The intersection of work and life.

BARRIERS TO INNOVATION

A recent IBM Consulting survey of 765 CEOs that found that "Without a supportive corporate culture, proper funding for investment, and a cooperative workforce, even the best plans for innovation will falter" . The study quantifies much of what we have been discussing in our blog as well as our Exec Ed class -- Driving Organic Growth.

The first chart highlights the major barriers we found repeatedly:

The inability of companies to resource their critical growth initiatives to win is perhaps the most important reason for lackluster results. The underpinning cause is usually an ineffectual portfolio process. All businesses must meet their short term financial goals; they only have so much budgetary headroom. The inability or lack of desire to kill projects that we call "the walking dead" takes valuable resources away from the growth initiatives. More often than not, these "walking dead" projects are favorites of those in power. What is needed is a transparent and rigorous decision process.

The second issue highlighted in the IBM study is Corporate Climate. Our experience suggests that managing business risk is critical to driving organic growth -- how do you execute in highly uncertain business/technology environments? We talked about this earlier (8/22/056 post) in relation to the need to "manage the cost, not the rate of failure" (MacMillan and McGrath). This is more than changing a process; it is about culture and it starts with the top!

Managing business risk is growing in importance as IBM found that more and more of innovation is occurring around business models which, by definition, requires fundamental change and an inherent increase in uncertainty and exposure to business risk -- ~40% of innovation efforts are on product or services but a full 30% is on new business models which must be lead from the top (see 8/27/06 blog); the remaining innovation is on operations.

FIVE KEY STRATEGIES FOR MAKING METRICS
Business Week On-line, 8/10/06
Dev Patnaik

A question I always get when working with companies is: What are the right metrics to drive growth? The following article sheds light on this subject. Two key points are: leaders must thoroughly discuss these issues and reach alignment on the metrics they want to drive their company; and, everything is not vanilla—differential management (in this case metrics) is essential for sustainable growth.

Corporate leaders often struggle to create meaningful innovation metrics. The same questions keep arising. How innovative are we? What initiatives are giving us the biggest bang for our buck? And what does a good idea look like anyway?

In my experience consulting with a range of companies, I've found five key strategies for developing useful metrics:

Use people, product, and process metrics. Many companies develop metrics systems that focus only on the process. Their intention is to evaluate the effectiveness of various innovation activities. Yet process metrics are just one part of the solution, and they're usually the last part.Start by measuring your people. What traits are you looking for in your team? What behaviors do you want to reward? Next, move to product metrics. How are you measuring the ideas you come up with? Do you have meaningful ways to evaluate new products, as well as new services and business models? Only when people and process metrics are in place does it make sense to evaluate how well the overall process is performing.

Connect the metric to the rhetoric. Some business leaders hope to inspire their organizations by spending hundreds of thousands of dollars on management retreats, pep rallies, and innovation seminars. While those gatherings can be exciting, most companies discover that their employees ultimately prioritize the activities that they're measured on.Marketing managers won't spend time thinking about long-term growth if they're being evaluated solely on this quarter's performance. The most successful companies realize that innovation, like any objective, happens when companies ensure that there's a close alignment between stated goals and individual performance measures.

Start with incentives instead of controls. Metrics systems within companies act as both drivers to ensure constant improvement, and control systems to prevent failure. That can be incredibly helpful when everyone has a general sense of what "good" looks like, and how to achieve it. However, that basic notion of what's good is sometimes missing at the outset. In that case, it's more important to create metrics that reward positive results, rather than protect against adverse outcomes. The goal is to get people to start trying a variety of approaches, so you can figure out what works. If you're in the early stage of building an innovation system, definitely focus on carrots.

Set up multiple tracks. One of the best ways to encourage innovation is to stop discouraging it. That can happen when every new product or service idea has to meet the same performance metrics. Invariably those metrics are designed to evaluate base hits, not home runs. This can lead companies to inadvertently kill the best ideas because they don't fit the metrics. Teams pick up on the pattern quickly, and lower their sights to more tried-and-true projects that can get through the system.If you really want have both incremental and game-changing ideas come to market, develop different sets of metrics for evaluating and managing each idea.

Beware of false precision.Metrics that measure existing systems in current businesses often have a lot of data to draw upon. That's often not the case when a company is trying to do something new or innovative. Still, old habits die hard. Managers can end up trying to evaluate a completely new idea with the same level of precision they had when measuring established businesses. The data that they create may then give a misleading picture of certainty.Instead of detailed projections, try using round numbers, simple scales of 1 to 5, or "Harvey balls," that system of empty or filled-in circles used by Consumer Reports. Highly detailed metrics make sense for incremental improvements on established businesses, but they can be wildly misleading when evaluating greenfield opportunities.

Patnaik is a principal of Jump Associates, a firm that specializes in discovering new opportunities for growth

How to Be a Smart Innovator

Nicholas Carr talks about the right way to be creative -- and the wrong way WSJ, September 11, 2006; Page R7

I generally do not reproduce an entire article but this is fantastic. Mr. Carr describes how corporations should view innovation. This article illustrates our position that the goal of investing in innovation should lead to competitive separation (the outcome of competitive differentiation) at your target customers. I put this under the PROCESS category because it is my experience that the type of process you deploy will deal with the issues raised by Mr. Carr. I highlighted those areas I feel are most important. Enjoy!

Challenging the conventional wisdom seems to delight Nicholas Carr. Mr. Carr, 47 years old, also has turned a skeptical eye on another popular notion (he appears regularly in HBR) : If innovation is a good that companies should pursue, more innovation is even better, and the best innovations are those that upset existing markets or industries. Instead, Mr. Carr says, companies need to be prudent -- even conservative -- in where and how much they encourage innovation.

Wall Street Journal news editor Michael Totty and columnist Lee Gomes recently spoke with Mr. Carr about the best ways that companies can pursue novel thinking. Here are excerpts of that conversation.

The Price of Innovation

THE WALL STREET JOURNAL: What's wrong with unfettered innovation?

MR. CARR: American companies are in love with the idea of innovation, and that's great and it's necessary and it's one of the great strengths of businesses and American businesses in particular. But the danger is that companies can come to believe that innovation is a universal good and that they should be innovating everywhere in their company.
They lose sight of the fact that innovation isn't free, that innovation actually is quite expensive and quite risky. You need to bring the same kind of discipline to deciding where you innovate as you'd bring to any other kind of management question. You want to make sure that you innovate in those few areas where innovation can really pay off and create a competitive advantage and not innovate in other areas where it won't pay off.

WSJ: How does a company decide where and how to pursue innovation?

MR. CARR: You have to connect your innovation initiatives and your innovation investments to your broader business strategy, and look at those areas where you are going to get, or think you can get, a competitive advantage. For some companies, the highest potential areas for innovation may be in its manufacturing processes or in the way it manages its supply chain. For other companies, it may be in their products themselves. For still other companies, it could be in their branding and marketing areas.

Dell and Apple vs. Gateway

WSJ: Why did you start thinking or writing about this? Were there companies that you saw doing it badly, that evidenced an inappropriate enthusiasm for innovation?

MR. CARR: I'd seen -- particularly in a lot of business writings -- a kind of cult of innovation emerging that said innovation is an unalloyed good and you should be innovating everywhere in your company. And so that struck me as being too simplistic. One good example is if you look in the personal-computer industry at Dell and Apple. Dell's having some problems now, but it's still the most profitable PC maker and has been for some time. Apple is doing very well with a different strategy. You look at those two companies and you see that Dell has been very aggressive as an innovator in its basic processes, and particularly [in] finding ways to reduce costs as low as possible. But it hasn't been an innovator in the product itself. It's in fact very much gone the commodity route, which up until now was a very powerful strategy for it.
Apple is almost the mirror image of Dell in that it has been very good at copying the process side [by] looking at what companies like Dell have been doing, and then being a very aggressive innovator on the product side, trying to get distinctive products out there. Both have been successful by being very focused in the way they innovate.
A company like Gateway tried to do both. It tried to innovate in its products and get differentiated products, and it also tried to innovate in its processes. It even tried to innovate in its retailing strategy and tried to roll out a bunch of services as well. By innovating so broadly it didn't actually create any competitive advantage and ultimately struggled enormously and fell behind those more disciplined innovators.

Another of the dangers of the cult of innovation is the belief that you need to go for home runs in innovation and that you need to be a leader in figuring out the innovations that are going to be disruptive of your entire industry.

When you look at the type of innovations that pay off, they are often much more modest innovations that, instead of causing disruptions, mend those disruptions or help regular customers adapt to new technologies or new innovations.

Building Bridges

WSJ: In that context, you have written about "bridging" technologies. Explain what you mean by that.

MR. CARR: For a lot of companies, the people who are in charge of innovation, whether it's the R&D folks or product developers or entrepreneurs in small companies, are the people who are the most passionate about the particular new technologies. They tend to be the early adopters, and that can give them a distorted view of the market. Because most normal people are actually quite conservative: They'll adopt a new technology, but they tend to do it quite slowly. That opens up a big opportunity for companies that are smart in figuring out how to help normal, everyday customers create a bridge between an old, established technology or way of doing things and a new one.

New technologies tend to be difficult to use. They tend to be buggy and not work perfectly. They tend to be expensive. All of those things mean that they tend to be limited to a small, early-adopter customer base for quite a long time. If you can figure out a way to move with the market toward the new technology, I think you can do a lot better than jumping ahead.
Back in the dot-com era in the late 1990s, you had all sorts of new-media companies being organized to try to deliver video online. And almost all of them went bust for a very simple reason: Very few U.S. consumers actually had broadband access. The companies were way out ahead of the market in innovation. Even today, fewer than half of American households have broadband Internet access.

In contrast, you have a company like Netflix that was able to bridge between the new technology -- the Internet -- and the old technology, which is the delivery of video in physical form, by using the U.S. mail to deliver DVDs, yet having a very sophisticated ordering system online that didn't require broadband access to use.

WSJ: Is it ever better to be the first mover?

MR. CARR: The studies that I've seen indicate that it's rarely the very first mover into a market who ends up winning that market. Today we think of the iPod as being an enormous innovation, and in one way it was. But in fact, when the iPod came along there were already MP3 players and there were already lots of digital jukeboxes.

WSJ: Managed innovation seems really difficult to pull off. You manage it too tightly and you squelch it, or you let it go too far and it runs amok. How does a company create a balance so that people are coming up with new ideas but they're not tearing apart the company?

MR. CARR: You can manage where you innovate and pick and choose your targets. But once you've chosen your targets, trying to micromanage the actual innovation process can backfire by undermining the creativity of your best people.

My argument isn't that you should try to impose overly formal rules and regulations and practices on your innovators or on your innovation teams. It's just that you should make sure that those teams and those people are focused on the right areas of your business that require innovation.

That's not always the product. It's not always something that the customer sees. It might be in a very nitty-gritty process, even back-office processing if that's where you're going to have the most opportunity to distinguish yourself from the competition. The greatest innovations aren't necessarily the ones that translate into superior products. Equally powerful are innovations that let you reduce your costs. Just because an innovation isn't visible to your customers doesn't mean that it can't be extremely powerful for your company.

One other thing that I think is important. Very strong innovation can translate into a message to an organization that being a copycat or an imitator is bad. If you look in most companies -- even very successful ones -- in most areas of their business they're actually very effective copycats or imitators. They're looking for the best practices that are out there among their competitors and other companies, and they're copying them in getting their processes and components to the best possible level and then innovating in more focused ways. The ability to be a good copycat is extremely important for companies and probably as important as being a good innovator.

The second organizational danger of pushing everybody to innovate, and of sending out a message -- as a lot of companies do -- that we need to innovate everywhere, is that you begin to devalue competence among your staff. There are some people who are not going to be good innovators but might be extremely competent in what they do. It's important that those people feel valued in that they're rewarded for their competence.

Creative people are great, but creativity tends to be a messy process. There are going to be areas of your business where that's OK, and there are going to be areas where the last thing you want is messiness. In those areas you should value and reward competent people who can do routine tasks very, very well. That's just as important as having brilliant, breakthrough thinkers.

OPEN INNOVATION

Kimberly-Clark turns to outsiders on R&D
Company opens up its operations for fast innovation
11:17 PM CDT on Tuesday, August 8, 2006
By KATHERINE YUNG / The Dallas Morning News

Open Innovation offers a huge potential to leverage the knowledge outside you company. It is at its infancy and we will keep you abreast of developments as more and more companies experiment with it.

NEENAH, Wis. – Since its inception 134 years ago in this town along the Fox River, Kimberly-Clark Corp. has relied on its own scientists and engineers to create products.

But this spring, the Irving-based consumer products giant known for Huggies diapers and Kleenex tissues made a radical change, looking outside its research labs for innovation.

A Florida company, SunHealth Solutions LLC, helped Kimberly-Clark roll out SunSignals, self-adhesive, water-resistant sensors that change color when the wearer is in danger of sunburn.
The promotional items, distributed inside packages of Huggies Little Swimmers disposable swim pants, proved to be such a hit that Kimberly-Clark is looking at selling the sensors as a stand-alone product.

Developed in just six months, SunSignals represents one of a growing number of agreements that Kimberly-Clark is forming in a dramatic overhaul of its research and development operations.

The effort is part of a broader business movement called "open innovation," which seeks to do away with the vertically integrated model of product development that's existed for decades.

Faster development

By turning to outsiders and giving them key roles in bringing concepts to market, companies from Kraft Foods Inc. to International Business Machines Corp. hope to debut more hits faster, boosting sales and profits.

The movement is made possible in part by improved tools for communication, including the Internet, which make long-distance collaboration much easier. Last year, Kimberly-Clark slashed the time it takes to bring out new products by 30 percent, largely through open innovation. "It saves us so much time," said Cheryl Perkins, Kimberly-Clark's senior vice president and chief innovation officer.

Relying on outsiders can also be cheaper, said Henry Chesbrough, executive director of the Center for Open Innovation at the University of California at Berkeley's Haas School of Business.
"Innovation is becoming expensive," he said.
"Developing new technology is taking more and more money."

Open innovation is also growing in popularity because shorter product life cycles make it harder to recoup R&D investments.

Open innovation helped Kimberly-Clark develop new products faster last year, said chief innovation officer Cheryl Perkins.

For all of its benefits, open innovation presents challenges, said Walter Herbst, director of a product development program at Northwestern University and chairman of Herbst LaZar Bell Inc., a product design firm. "It's tricky, it's hard, and most company cultures can't deal with it," he said. Though he supports open innovation, Mr. Herbst said only a few companies, such as Procter & Gamble Co., have much to show for it.

At P&G, a major Kimberly-Clark rival in personal care products, open innovation has led to such hits as Mr. Clean Magic Eraser and Pringles Prints. A year ago, the consumer products behemoth estimated that 35 percent of its products, designs, technologies and processes were not invented at the company. Its goal: 50 percent.
"We've been very pleased with it," P&G spokesman Jeff LeRoy said.

Calling in help

A quarter of current R&D spending is devoted to new businesses, compared with just 10 percent in 2003.

Kimberly-Clark says that to reach its goals, the company will have to engage outside parties in the development and launch of products.

Last year, Kimberly-Clark formed more than 30 partnerships with firms big and small. They took the form of joint-development agreements, joint ventures, co-distribution and supply agreements, and licensing deals. Today, a few results of these changes are starting to appear.
Huggies Cleanteam, a line of toddler toiletries, took only 12 months to hit store shelves, not the typical two to three years, thanks in large part to partnerships with other firms.