Prizes for Solutions to ProblemsPlay Valuable Role in Innovation

WSJ, January 25, 2007; Page A6

The following is a powerful example of how to use Open Innovation. We have to start expanding our ways of developing ideas and solutions beyond the walls of our company. The next couple of blogs will focus on this…………

The U.S. and other modern capitalist economies rely on a handful of approaches to stimulate innovation.

Big corporate research-and-development shops invest shareholders' money in the search for future profit. Small entrepreneurial start-ups do the same with venture capital.

Academics toil in big universities, sometimes for profit, sometimes for glory.

Open-source software wizards mend and tend shared software that no one owns, the high-tech equivalent of a barn-raising.

Government steps in where private money fears to tread.

Now, a proliferation of prizes is attracting bright minds to stubborn problems.

InnoCentive, a company spun off six years ago by drug maker Eli Lilly, charges clients ("seekers") to broadcast scientific problems on a Web site where scientists ("solvers") are offered cash -- usually less than $100,000 -- for solutions; more than 50 challenges are now pending. Netflix, the mail-order movie company, is offering $1 million for an algorithm that does 10% better than its current system for predicting whether a customer will enjoy a movie, based on how much he or she liked or disliked other movies........

"'Prize philanthropy' is useful for breaking a bottleneck where government bureaucracy and markets are stuck," says Thomas Vander Ark, who recently left conventional philanthropy at the Bill & Melinda Gates Foundation to run the X-Prize Foundation. While Gates and similar foundations "push" money on people to solve problems or meet social needs, he says, prizes "pull" people to problems.

Such prizes, newly popular and possible in an age of instant, cheap global communication, have a venerable history. In 1714, Britain offered £20,000 (roughly equivalent to £2.5 million, or $5 million, today) for a way for mariners to determine their longitude. Sir Isaac Newton was convinced the solution lay in astronomy. He was wrong: John Harrison, a working-class joiner with little formal education, built a clock that did the job. In 1919, hotel owner Raymond Orteig offered $25,000 for the first nonstop flight between New York and Paris. Eight years later, Charles Lindbergh won.

Prizes prompt a lot of effort, far more than any sponsor could devote itself, but they generally pay only for success. That's "an important piece of shifting risk from inside the walls of the company and moving it out to the solver community," says Jill Panetta, InnoCentive's chief scientific officer. Competitors for the $10 million prize for the space vehicle spent 10 times that amount trying to win it.

Contests also are a mechanism to tap scientific knowledge that's widely dispersed geographically, and not always in obvious places. Since posting its algorithm bounty in October, Netflix has drawn 15,000 entrants from 126 countries. The leading team is from Budapest University of Technology and Economics.

After examining 166 problems posted by 26 research labs on the InnoCentive site over four years, Karim Lakhani, a Harvard Business School professor, found 240 people, on average, examined each problem, 10 offered answers and 29.5% of the problems were solved.
One surprise: The further the problem was from a solver's expertise, the more likely he or she was to solve it. It turns out that outsiders look through a completely different lens (THIS IS SO POWERFUL!!!). Toxicologists were stumped by the significance of pathology observed in a study; within weeks after broadcasting it, a Ph.D. in crystallography offered a solution that hadn't occurred to them.

InnoCentive seekers and solvers are anonymous. "An undergrad from the University of Dallas solved a problem for a Fortune 500 company," Ms. Panetta says. She sees that as an advantage: "They are really judging it on the sciences, not on who is standing behind it."

Prizes aren't a panacea. They won't replace corporate R&D labs or universities. Some problems -- a cure for cancer -- are just too big. Some require too much upfront investment. Some scientists are reluctant to admit defeat and surrender a problem.

Moreover, the secrecy on which businesses insist to protect intellectual-property rights has its downsides: "People are in a black hole," says Harvard's Mr. Lakhani. "They don't know anything beside whether they won or lost." Losers' knowledge isn't widely shared.

But prizes work in ways that conventional R&D doesn't, and finding ways to spur innovation is crucial to improving how well we -- and our children and grandchildren -- live.

Apple's New Calling: The iPhone
Time on-line Wednesday, Jan. 10, 2007 By LEV GROSSMAN

THE FOLLOWING IS AN EXCERPT FROM TIME MAGAZINE ON THE INITIAL REACTION TO THE iPhone. I FELT THERE WERE SOME POWERFUL LESSONS TO BE LEARNED THAT WE DISCUSSED IN CLASS.

THE iPhone IS AN EXCELLENT EXAMPLE OF INTEGRATION INNOVATION –REMEMBER THE EXAMPLES IN CLASS WERE MICROSOFT’S OPERATING SYSTEM; THE SAP ENTERPRISE SOFTWARE; AND, HP’S PRINTER, FAX, AND COPIER COMBINATION. THE CRITICAL REQUIREMENT WAS THAT THERE MUST BE SIGNIFICANT ADDED VALUE FOR THE INTEGRATED OFFERING VS. THE COMPONENTS TAKEN SEPARATELY. The iPhone breaks two basic axioms of consumer technology. One, when you take an application and put it on a phone, that application must be reduced to a crippled and annoying version of itself. Two, when you take two devices—such as an iPod and a phone—and squish them into one, both devices must necessarily become lamer versions of themselves. The iPhone is a phone, an iPod, and a mini-Internet computer all at once, and contrary to Newton—who knew a thing or two about apples—they all occupy the same space at the same time, but without taking a hit in performance. In a way iPhone is the wrong name for it. It's a handheld computing platform that just happens to contain a phone…...

Jobs's zealousness about product development— and enforcing his personal vision—remains as relentless as ever. He keeps Apple's management structure unusually flat for a 20,000-person company, so he can see what's happening at ground level. There is just one committee in the whole of Apple, to establish prices. I can't think of a comparable company that does no—zero—market research with its customers before releasing a product. Ironically, Jobs's personal style could not be more at odds with the brand he has created. If the motto for Apple's consumers is "think different," the motto for Apple employees is "think like Steve." JOBS IS AN INCREDIBLE, INTUITIVE THINKER. REMEMBER WE DISCUSSED THE IMPORTANCE OF INDUCTIVE DATA FOR QUALITATIVE INSIGHTS VS. QUANTITATIVE, DEDUCTIVE DATA IN THE CREATIVE PROCESS.

WE CONTINUALLY TALK ABOUT THE IMPORTANCE OF EXPERIMENTING AND LEARNING FROM YOUR FAILURES – MANAGE THE COST, NOT THE RATE OF FAILURE. THEIR EXPERIMENT WITH MOTOROLA AFFORDED A VERY VALUABLE LESSON The last time Apple experimented with a phone, the largely unsuccessful ROKR, Jobs let Motorola make it, an unsatisfying experiment. "What we learned was that we wouldn't be satisfied with glomming iTunes onto a regular phone," Jobs says. "We realized through that experience that for us to be happy, for us to be proud, we were going to have to do it all." …..

ALTHOUGH THE FUNCTIONALITY OF THE PHONE IS EXCEPTIONAL AS DESCRIBED ABOVE, THE REAL IMPACT AND POSSIBLE JUSTIFICATION FOR THE INITIAL HIGH PRICES IS THE IMPACT ON THE CONSUMER’S EXPERIENCE IN USING THE Iphone UNIQUE INTERFACE AND THE SEAMLESSNESS OF THE VARIOUS COMPONENTS. It's not quite right to call the iPhone revolutionary. It won't create a new market, or change the entertainment industry, the way the iPod did. When you get right down to it, the device doesn't even have that many new features—it's not like Jobs invented voicemail, or text messaging, or conference calling, or mobile Web browsing. He just noticed that they were broken, and he fixed them.

The five Google products
Nicholas Carr Blog December 04, 2006
« Knowledge and unknowledge Main IT, automate thyself »

Like the last posting of Yahoo’s challenge of focus – avoid “the peanut butter spread” -- Google is faced with the same challenge. This offers thought provoking insight into what they might be thinking and may afford real benefit to your development efforts. The author highlights the growing dilemma at Google and offers ideas on how they could organize around platforms. Those of you, who have worked with me know I always elevate individual ideas to themes or platforms. As a business person or consultant, I rarely found single ideas that could rally the troops internally or, more importantly in the markets place. Defining growth platforms afford the critical mass needed to drive growth and often leverage your position in the marketplace.

It seems like only yesterday that a bunch of breathless articles appeared touting the brilliance of Google's innovation strategy. That strategy was, if you recall, the spaghetti strategy: Throw a lot of stuff against the wall and see what sticks. Business Week captured the concept well in this passage from a big October 2005 story on Marissa Mayer, the company's director of Web products and "champion of innovation":

What Mayer thinks will be essential for continued innovation is for Google to keep its sense of fearlessness. "I like to launch [products] early and often. That has become my mantra," she says. She mentions Apple Computer and Madonna. "Nobody remembers the Sex Book or the Newton. Consumers remember your average over time. That philosophy frees you from fear

As it turns out, though, that innovation strategy wasn't particularly successful. In a series of recent high-profile statements, Google's cofounder Sergey Brin and its CEO Eric Schmidt have made it crystal clear that they've been disappointed by the results of the company's new-product strategy and are revamping it. (Larry Page, despite holding the title President of Products, has been curiously absent from the discussion.)

Brin has been particularly blunt. In early October of this year, the Los Angeles Times reported that "Sergey Brin is leading a companywide initiative called 'Features, not products.' [Brin] said the campaign started this summer when Google executives realized that myriad product releases were confusing their users. 'It's worse than that,' said Brin, Google's president of technology. 'It's that I was getting lost in the sheer volume of the products that we were releasing.'" The article also quoted Schmidt, who said of Brin's effort, "That is a big change in the way we run the company."

Brin returned to the theme of pruning back product development a couple of weeks later in the company's third quarter conference call with analysts: "What we are concerned about is that if we continue to develop so many new individual products that are all their assorted silos, you will have to essentially search for our products before you can even use them. And then you will have to search before you can do a search, in many cases. Instead what we're doing now is we are trying to create the horizontal functionality across a range of products, across media types and so forth."(i.e. a platform)

In a couple of brief blurbs included in an article about "how to succeed in 2007" in Business 2.0, Brin and Schmidt hammer the point home again. "Simplicity is an important trend we are focused on," Brin says. "Success will come from simplicity ... We are focused on features (I would prefer the concept of focusing on customer outcomes), not products. We eliminated future products that would have made the complexity problem worse. We don't want to have 20 different products that work in 20 different ways. I was getting lost at our site keeping track of everything. I would rather have a smaller set of products that have a shared set of features." Schmidt says pretty much the same thing: "We are trying to shape the innovation going forward from here and get things more integrated, make Google more integrated. This is a big change in the way we run the company. In the past the philosophy has been 'get this done, get it built, and get it out.' But continuing that, we would end up with hundreds of products named X-Google, and people can only remember five products."

Simplicity is the new spaghetti. If the statements weren't clear enough, the company added an exclamation point last week when it announced it was killing off its Google Answers product.
Brin's and Schmidt's words amount to an unusually strong, and carefully coordinated, public critique of what until now had been presented as a cornerstone of Google's success. But they're probably a good sign for the young company. They show that, in this instance, anyway, Google isn't falling into the trap of believing the hype about itself - even when the hype originates from its own organization.

What I found most intriguing, though, was Schmidt's remark that "people can only remember five products." These guys are sticklers for precision when it comes to numbers, so I'm guessing that the number "five" didn't just pop into Schmidt's brain when he was preparing his words for the Business 2.0 piece. In fact, I'm not sure you'd be going too far out on a limb if you were to speculate that five is Google's current target for a product set. Five is the magic number.

So if Google were going to begin integrating its current products, features, and whatnot into five platform products, what would those products be? Well, you might think that they would match up with the five categories that the company currently uses to present its products: search; explore & innovate; communicate, show & share; go mobile; make your computer work better. But even though that categorization provides some hints, I think it's too ungainly a list to translate into a sensible product set. A better clue comes from Brin in his remarks during the earnings call:
What we're doing now is we are trying to create the horizontal functionality across a range of products, across media types and so forth. For example, I mentioned already Google Apps for Your Domain, and that in a sense is a product, but really it just combines a whole bunch of other offerings together, seamlessly integrated together so they can work well for an organization.
.
So boil it all down, and here is my best guess at what the five Google products will be and how they'll be branded:

-Google Search ("Google" goes back to meaning just search: for all information types, on all devices, personalized)
-AdMarket (a unified market place for buyers and sellers, spanning web text, web video, web banners, print, radio, TV)
-YouTube (YouTube expands from video to become the common interface for all media sharing)
-YouTools (what Apps for Your Domain morphs into, with different tool sets for businesses, families, universities, and hospitals)
-YouFile (a personal information management service, covering health data, finances, etc.)
Posted by nick at December 4, 2006 09:37 AM

As Yahoo Falters,Executive's MemoCalls for Overhaul
'Peanut Butter Manifesto' Seeking Focus and CutsMakes Waves at Web Titan Can It Wring More From Ads?
By KEVIN J. DELANEYWSJ, November 18, 2006; Page A1


The last posting focused on a strategy approach defined by the acronym FAST – Focus, Accelerate, Strengthen, and Tie together. Although I agree with John Hagel that strategy in not sequential and multiple time lines must be managed simultaneously, I disagree with his time frame. Relating this to our discussions of McKinsey’s 3 Horizon model, I believe a better analysis is:
- “Focus” should drive Horizon 3 activities using Options Management as the principle tool – “manage the cost, not the rate of failure”
-“Accelerate” should drive Horizon 2 projects using methodologies such as Discovery Driven Planning (see the Entrepreneurial Mindset from McGrath and MacMillan)
-“Strengthen” dictates Horizon 1 efforts.
-“Tying” it altogether means managing all 3 Horizons

This posting and the one to follow highlight the challenge of “Focusing” longer term efforts from two icons of today’s digital world – Yahoo and Google.

The following are excerpts of the WSJ article discussing Yahoo’s challenge……

It is called "The Peanut Butter Manifesto" -- a four-page call to arms from a senior executive of Yahoo Inc., declaring the Internet company is spreading itself too thin and must define priorities and radically reorganize its management structure………

Yahoo, which consumers use for email, news and a wide menu of other services, is under increasing pressure to hold its top position. One analyst predicts Google will overtake Yahoo in users in 2007. Microsoft Corp. has stepped up its Internet activities, and Time Warner Inc.'s America Online unit increased usage recently by opening up free, unrestricted access for its services. Sites including News Corp.'s MySpace have rapidly gained visitors and attention from advertisers.

This year, Yahoo has suffered from slumping shares, slowing revenue growth, staff defections and a delay in a crucial project aimed at boosting online ad sales. As the memo shows, even some current executives have been fretting that the Internet company's top management isn't prepared to take the strong medicine they feel is needed to right the ship.

Some worry that Yahoo -- whose activities range from online dating to fantasy sports -- has stretched itself thin and lost track of priorities. Recently, the company has been outmatched in key areas such as search advertising and social networking. (See related article.)

Last month Brad Garlinghouse, a Yahoo senior vice president, wrote the memo, titled "The Peanut Butter Manifesto," for top executives. His contention: "Change is needed and it is needed soon."

Mr. Garlinghouse, who once shaved a "Y" in the back of his head, argued in his manifesto that Yahoo is spreading its resources like peanut butter on bread, thinly and evenly across all its activities. "Thus we focus on nothing in particular," he wrote, saying the Sunnyvale, Calif., company needs to pick specific areas to focus on and make bigger bets on them while dropping nonessential activities (TO OUR ALUMNI, SOUND FAMILAR)…………

Headings in the peanut-butter memo, which was reviewed by The Wall Street Journal, include "We lack a focused, cohesive vision for our company," and "We lack decisiveness."………..

The Peanut Butter Manifesto identifies concerns that some current and former executives say are generally on the mark. Among them: the absence of a "focused, cohesive vision" for Yahoo, which means it wants "to do everything and be everything -- to everyone." The result, Mr. Garlinghouse wrote, is a company that is reactive and "scared to be left out." He cited bickering between business units and a proliferation of executive hires from outside as contributing to the problem.

Another issue identified in the Manifesto: a "matrix" corporate structure where responsibility for a product's performance is spread among multiple executives -- in engineering, product, marketing and corporate strategy. The memo cites competing offerings, such as Yahoo's photo sharing site Flickr and Yahoo Photos, as well as Yahoo Media Group's video activities and the search unit's video service.

Mr. Garlinghouse suggested creating manager positions with responsibility for all aspects of a particular business, from marketing to engineering and business development and including its bottom-line results. The memo also suggested "the leaders ultimately live/die by the results." Eliminating redundant activities means Yahoo must reduce staff by 15% to 20%, Mr. Garlinghouse wrote.

FAST Strategy
http://www.johnhagel.com/view20030520.shtml

HAPPY NEW YEAR to all!!!!!

This is an interesting and thought provoking view of strategy. I would love to get the reaction from our blog network. The next few postings will deal with the challenge of focusing our efforts

My (John Hagel) first piece of advice: throw out two basic tenets of business strategy. First, reject the notion that strategy is sequential – that detailed strategic blueprints need to be laid out before a company can proceed with operational implementation. Secondly, abandon the traditional strategy view that the relevant time frame for strategic planning is a five-year horizon.

His second piece of advice: implement a FAST approach to strategy. FAST in this case is an acronym for Focus, Accelerate, Strengthen and Tie it all together. This approach urges executives to move along parallel paths, operating on two very different time horizons: one horizon takes a five to ten year view of the business and the second horizon zooms in to a much more tactical six to twelve month view of the business (How do our alumni feel about this in the context of the 3 Horizon and Option Management models we discussed?). The one to five year horizon that is so loved by traditional business strategists actually receives very little attention in the FAST approach (What has been your experiences?)

Focus is the key activity on the five to ten year horizon. This requires senior management to develop a common view on two key questions for their business. Five to ten years from now, what will the markets that we participate in look like? Then, what kind of business we will need to have in order to continue to create value in these markets? Unlike strategic approaches of the past, Focus does not require management to develop a detailed view of the future, but it does require management to develop a clear, high level view specific enough to help the company make important near-term choices (For our alumni, this could include defining the business’s Core Mission; having a set of Ballpark Decision Criteria to define the focus; and, a clear statement as to those markets leadership feels is critical for growth)

To illustrate the high level nature of the view of the future, look at Microsoft. Back in the late 1970’s Bill Gates defined a Focus for Microsoft that could be summed up in two sentences. First, computing power is inexorably moving from centralized mainframes to desktop computers. Second, to be successful in the future, a computer company will need to "own" the desktop. Simple and succinct, yet specific enough that it helped Microsoft to answer the unexpected call it got from IBM to help IBM develop an operating system for a new desktop computer it was developing, rather than the twenty other calls it undoubtedly received on that same day. This Focus helped to guide the company for two decades. It only began to need retooling in the late 1990’s as the advent of the Internet set into motion fundamentally new forces.

On the six to twelve month horizon, Accelerate and Strengthen are the key requirements. By Accelerate, he means identifying a few key operating initiatives that have the potential to significantly accelerate the movement of the company towards the long-term Focus. Once these initiatives are identified and agreed upon by senior management, the question is what can be done to help these initiatives increase their impact over the next six to twelve months? Management needs to set aggressive and measurable operating performance objectives for these initiatives over the next six to twelve months.

On the same time horizon, Strengthen also comes into play. Here, management needs to ask, what are the major organizational obstacles that are preventing us from moving even faster to achieve our operational objectives? Then the question becomes, what can be done over the next six to twelve months to "de-bottleneck" the organization and strengthen our organizational capabilities so that we can move even faster in the next six to twelve month cycle (as discussed in our class, this is a critical role for leadership)?

Tie it all together integrates these three streams of activities. The key to success with the FAST strategy is to frequently iterate back and forth across these two time horizons and refine efforts on all streams based on the results of efforts to date. The near-term operating initiatives will provide management with much more information regarding both the market place and the capabilities of the company. This should help to refine the longer-term Focus view. In turn, this refined Focus view will be helpful in selecting and shaping the next wave of near-term operating and organizational initiatives. Senior management must actively monitor progress on all three streams and play an active role in shaping initiatives and setting objectives.

The FAST strategy approach respects the need for both near-term performance and longer-term direction, learning and adaptation. It favors incrementalism but recognizes that, without direction, incrementalism will inevitably sub-optimize relative to longer-term opportunities. Properly focused, incrementalism provides significant advantages relative to more tempting "big bang" transformational initiatives (What are your thoughts here?):
-Provides clear, near-term operational performance metrics to assess progress
-Focuses management on delivery of significant near-term operating results consistent with longer-term direction
-Enhances ability to fund major strategic thrusts by emphasizing the need for tangible returns early – initiatives potentially become self-funding
-Helps to build organizational support for longer-term direction by demonstrating tangible returns quickly while at the same time helping to neutralize opposition
-Accelerates organizational learning by providing clear metrics and creating rapid performance feedback loops
- -Strengthens ability to adapt based on new information gained from near-term operational and organizational initiatives