Saturday, April 28, 2007

What's in a Name? For Apple, a Focus on the Digital Living Room
Published: January 24, 2007 in Knowledge@Wharton

In my ongoing discussions of driving organic growth, I emphasize the importance of senior management defining the strategic space they want their company to participate in. Simple things like what you call your business can be critical. I can’t begin to tell you how many times I see that product or service driven companies/businesses –versus market/customer driven – label their businesses by what they sell or even worse, by what they make. This is incredibly limiting. The following is an excellent example of expanding a company’s strategic space affording the necessary “room” to sustain growth.

Apple's name change from Apple Computer to Apple on January 9 highlights the company's new reality: CEO Steve Jobs' strategy today revolves around converged consumer devices much more than around personal computers.

Indeed, Apple's recent announcements point to a consumer electronics company more than a computer maker. On the same day it announced its name change, the company launched the iPhone, a cell phone-iPod hybrid, along with Apple TV, a device to deliver video content downloaded through Apple's iTunes service to consumers' television sets. On January 17, Apple stated that it had sold 21 million iPods in its fiscal first quarter ending December 30. For Apple, the iPod and iTunes businesses represented $4 billion of the company's total $7.1 billion in revenues for the same quarter. Sales of Apple's Mac computers, in contrast, accounted for $2.4 billion in revenue. Apple shipped 1.6 million Macs in the quarter, below the 1.75 million Wall Street some analysts were expecting.

Experts at Wharton note that Apple's new moniker makes official a business strategy that has been underway since the iPod was launched in 2001. That strategy: Create devices that will form the hub of the digital living room, where audio and visual content will be available on demand and can be networked seamlessly across multiple devices. But just as it did in the PC industry, Apple faces tough competition. The same week that Apple introduced its iPhone, Microsoft -- which also has designs on the digital home -- unveiled the Home Server, a device that will back up digital content throughout one's house. Apple also faces other rivals such as Sony, which has delivered living room electronics for years.

Meanwhile, Apple has to walk a fine line between locking customers into its platform to boost profits while also making sure that its products work easily with other electronic devices.
Wharton management professor Sarah Kaplan suggests that Apple's name change doesn't have any direct impact on the business, but does accomplish the following: It signals to employees the company's long-term strategy, it clarifies the marketing message and it prods investors to compare Apple to consumer electronics firms rather than just computer makers. In addition, says Kaplan, "consumer electronics has always valued design, and that's what Apple's strength is."

But to Wharton marketing professor Peter Fader, Apple's name change is the equivalent of waving a white flag in the PC market. "How many Apple computers has the iPod sold?" asks Fader, alluding to the so-called "halo effect" where consumers who buy iPods may tend to migrate to Apple's computers. "The reality is that Apple is still a small part of the PC industry. The name change is recognition that it has lost the PC market."

Others say Apple's convergence strategy is blazing a new growth path as the PC market becomes commoditized. Eric Clemons, Wharton operations and information management professor, says the convergence of the PC, home entertainment equipment and wireless devices dictates that Apple gadgets such as the iPhone and iPod will be increasingly important. "Apple brings several things [to the market]: really sleek cool hardware, great software and a cool hip image," says Clemons. The company, he adds, "is trying to integrate a personal entertainment system [the iPod] and a personal online music store [iTunes] with more family-centric home stereo and home video."

And if Apple is successful -- Apple CFO Peter Oppenheimer noted on January 17 that the iPod controlled 72% of the digital music player market at the end of December -- it could have the last laugh over Microsoft. "As the convergence of PCs and consumer electronics moves ahead, you have a lot of complexity," says Kaplan. "And it's unclear if Microsoft can dominate. If Apple wins as markets converge, even if it has lost in the PC market, it will ultimately have the last laugh."

Monday, April 23, 2007

Some Important Growth Lessons
Intuit's Steve Bennett on why some General Electric alumni succeed -- and some don't
By VAUHINI VARAApril 12, 2007; WST Page R3

I would like to invite the group of Executive MBA students that were at Kellogg for a week to our group to begin to globalize our interactions. Welcome!

Some great lessons for all of us!!!

Since he joined Intuit in 2000, Mr. Bennett (frm GE) has more than doubled the company's revenue, to $2.3 billion in 2006 from $847.6 million in 1999. His trick: Apply the tried-and-true GE principles that make sense here, at a young, but maturing, software company -- and throw out the ones that are, he says, "really dumb."

When he arrived, Mr. Bennett quickly got rid of Intuit's weakest businesses and focused on the fastest-growing ones: TurboTax, which helps people file taxes, and QuickBooks, which helps small businesses manage accounting tasks. Then, he used new methods to better measure, reward and improve his employees' performance, to boost growth in the key businesses.
Now, as Intuit's old model of selling shrink-wrapped software faces pressure from the Internet, Mr. Bennett has his eye on two new growth engines. In February, he made Intuit's largest-ever acquisition, buying a company called Digital Insight Corp. for $1.4 billion.

The following are selected interview resposnes:

THE WALL STREET JOURNAL: Your background as a GE veteran is somewhat unusual among Silicon Valley CEOs. How does it make you different from an executive who has grown up in Silicon Valley?

MR. BENNETT: I think companies, to be durable and great, have to be great at innovation, and they also have to be great at execution. What I found when I came is that Intuit was great at innovation. Frankly, [Intuit founder] Scott Cook showed me notes of some of the ideas from 1996 that he had that were really good ideas that for some reason we were never able to execute on. We were a little less than a $1 billion company that was run like a small company.
At the beginning, there was always this paradigm: You can be innovative or you can be rigorous. And it's a false paradigm. You can be rigorous and innovative. What I've found here is that we've in the past few years launched more new products than ever in our history. We've had better reception in the marketplace. So actually, the rigor has made our innovation more successful, because we can execute against the great ideas. I think, actually, it's been a great marriage of innovation, which is what Silicon Valley is all about, and strategic and operational rigor.

WSJ: How would you define the "GE Way," and how you do apply it outside of General Electric?

MR. BENNETT: I think what you learn at GE isn't a lot different from what you learn in college. The key is to apply what you learn to the situation that you're in. I saw a Harvard paper on this that was really thoughtful. They talked about the match of the GE executives' skills and experience to what the company needed. Where the match was good, it was successful; and where the match was bad, it was not.

For example, if there was a GE manager that was a finance-driven cost cutter, and they put that person in a job that was about growth, the results weren't good. But in this case, we were cited as a success because they took somebody who actually had more of a growth background at GE -- me -- and put him in a company that was a growth company.

WSJ: As you started measuring more things, how did you sell people on the idea?

MR. BENNETT: I don't think command-and-control works. I think employees have a vested stake in the company's success, and they want to understand what we're doing to get better. The issue is to communicate what you're doing and why with employees. And if you get good at that, you're all on one team.

WSJ: In Silicon Valley, there's this conception that what one might describe as an East Coast way of doing business are things that slow down innovation. How did you bring both business rigor and innovation together?

MR. BENNETT: When I got here, Intuit had 10 "Operating Values." Operating Value No. 9 was, "Think fast, move fast." I changed only one word in the operating values: I changed "Think fast, move fast" to "Think smart, move fast." Because doing dumb things faster doesn't get you anywhere. Making dumb decisions quickly is the path to destruction. It's not about speed. It's about doing the right stuff. If you don't solve an important problem for customers better than anybody else, you're not going to grow.

WSJ: Jack Welch says in his autobiography that he asks himself, "What are you most afraid your competitors are going to do in the next two years to change the landscape, and what are you going to do in the next two years to leapfrog any of their moves?" How would you answer that question?

MR. BENNETT: I'd say it's a great question that applied great at GE. But our biggest competition at Intuit is substitute methods or nonconsumption. The reason that's different for us is that we grow the category to grow the business. We could focus on beating our competitors and grow the category 2%. Or we could focus on addressing customer needs and grow the category 10%. We have to do both.

GE has to focus on, "What do we have to do to beat the competitors?"
But if you think about QuickBooks, we've got 90% market share. What's more important? Beating someone that has 10% market share or converting 15 million people that aren't using accounting software? Who would you focus on?

GE is in sustaining businesses. We're in emerging businesses. Our strategy is to grow the business. That's because we have such high share.

Sunday, April 15, 2007

The five founding principles that drive innovation
By Jonathan Schwartz
Published:FT September 12 2006 19:41 Last updated: September 12 2006 19:41

Some great 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.

The writer is chief executive officer and president of Sun Microsystems. Read Mr Schwartz’s blog

Monday, April 09, 2007

General Mills seeks the next big idea
By Matt Mckinney, Star Tribune (on-line)

This article was suggested by Michaeleen Kruger, a real thought lead at Cargill. It is a great example of how major company is deploying Open Innovation.

The company behind Cheerios, Yoplait and Hamburger Helper wants someone out there to tinker their way into the next great food idea. The $12.5 billion company said it will lend its strength to anyone who has a new technology or a new product that makes a good fit for the corporation. The fine print: the technology must have a patent or patent pending, and the new product should be on the market somewhere in the world.

"I come at it from the assumption that the next big advance that's really going to reshape our industry has already happened," said Peter Erickson, senior vice president for innovation technology and quality. "What we've tried to do is create the capability that allows us to get out there and find that next advance ahead of our competition."

The company's push for new partners, which they're calling the Worldwide Innovation Network, is also a push to expand its already growing presence internationally. General Mills operates in 30 markets and exports to more than 100 countries. It hopes to find the best ideas in those markets, before competitors do.

"We've had a very long history of working with external partners that have been largely centered in the food industry," Erickson said. "A big part of this push is to get outside of the mainstream partners that we've worked with."

The company has also had a presence at recent food shows from Florida to Japan, looking for new technology and new products, said Jeff Bellairs, director of the Worldwide Innovation Network.

"We're looking at a global basis, literally around the world," he said.

Play for Yoplait paid off

The company has long folded others' efforts into its empire, beginning with the 1978 deal in which General Mills obtained the licensing rights to Yoplait from the Michigan Cottage Cheese Co. That firm had acquired the rights from Sodima, a French dairy cooperative. Today the company's Yoplait division sells $1 billion of yogurt annually.

The company is hoping to lure food inventions through its website (www, where a video plays up the company's history and size.

General Mills' growth has relied on a slew of new products every year, about 300 new food products last year alone, according to the company's annual report. General Mills, whose brands include Betty Crocker, Pillsbury, Green Giant, Old El Paso and Häagen-Dazs, expects to launch 100 products in the United States in the first half of this year alone, including Progresso soups with 50 percent less sodium and single-serve pouches of dried apple chips.

The idea mirrors some of the company's internal practices. It already relies on outside experts to dramatically increase its odds of finding solutions to thorny technical problems, Bellairs said. The company belongs to a network of about 200,000 scientists and engineers around the world who assist General Mills' 1,200 technology employees.

Bellairs said that he has worked closely with business teams within General Mills, learning from them what sort of things they would like to know more about.

"We are looking for things that fit with their strategies," he said.

The company is specifically looking for ideas related to core product lines, including snacks, cereal, refrigerated doughs and yogurt. It might take three months to review individual submissions.

Saturday, April 07, 2007

For Proctor and Gamble, Innovation is our life blood
Mar 3, 2006
By: Amy Rowell
Innovate Forum

This brief summary is rich with insight on how a major corporation is driving growth through innovation. It all starts from the top!!
Happy holidays to all!

Leading consumer packaged goods manufacturer Procter & Gamble has an impressive history of successfully launching -- and profiting from -- a vast array of new products every year. And, until recently, the company itself might argue that these products were the result of the diligent research efforts of an especially well-honed internal R&D team. But CEO A.G. Lafley brought a different mindset to the company when he arrived in 2000. Under his leadership, the company has shifted from a product development strategy that once relied on a high-powered R&D organization to one that capitalizes on a new approach, appropriately called, ”Connect and Develop”, or C&D.

First – some background on the “open innovation” model, which forms the basis for P&G’s Connect and Develop strategy. Several years ago, Harvard Business School professor Henry W. Chesbrough unveiled a rather unorthodox view regarding traditional product development in his book, Open Innovation: The New Imperative for Creating and Profiting from Technology. According to Chesbrough, in today’s information-rich environment, companies can no longer afford to rely entirely on their own ideas to advance their business. Instead, they can – and indeed, must – leverage both internal AND external sources of ideas, tapping into the rich knowledge base of information available not only outside the walls of R&D, but outside the walls of the company itself.

Based on this philosophy, Lafley has since taken the bold stance that P&G should strive to acquire 50 percent of its innovations outside the company. To accomplish this, today the company collaborates with organizations around the world, “systematically searching for proven technologies, packages and products that we can improve, scale up, and market, either on our own or in partnership with other companies,” (CRITICAL CONCEPT) says Larry Huston, P&G’s vice president for innovation and knowledge. Indeed, through Connect and Develop, P&G has successfully brought to market a number of new products already, including: Olay Regenerist, Swiffer Dusters, and the Crest Spinbrush, according a recent article in the Harvard Business Review.

As Jeff Weedman, vice president of external business development at P&G explained in a recent interview, “for Procter & Gamble, innovation is our life blood. Our senior management says it, repeats it, and our organization lives it.(IT HAS TO START FROM THE TOP) A lot of times, I hear about organizations that have set up innovation incubators. At P&G, we’ve clearly set the tone that innovation is everybody’s work. When you do that, you not only have people looking at the work that they do, but they’re also more receptive to ideas coming from other places, whether it’s inside P&G, or outside P&G.”(A CRITICAL ISSUE – HOW TO ORGANIZE FOR INNOVATION AND GROWTH)

Another important lesson that P&G has learned about innovation? Be careful about what you measure.(SEARCH YOUR CORPORATE SOUL FOR THE TRULY MEANINGFUL METRICS YOU GET WHAT YOU MEASURE) Advises Weedman, “If you use metrics that measure, for example, the number of patents you’ve got, then you can get an awful lot of patents, but patents don’t pay the bills. They don’t drive the revenue. So, it’s the conversion of ideas to commercially marketable, consumer-accepted products that P&G focuses on.”

Real words of wisdom from a truly innovative market leader.

Wednesday, April 04, 2007

How an IBM LiferBuilt Software UnitInto a Rising Star
By WILLIAM M. BULKELEY WSJ, April 2, 2007; Page B1

This article on the spectacular growth of IBM’s software business via acquisition illustrates two important points: a discipline process in the selection and integration of target companies is critical; and, M&A can be a major component of organic growth by filling the gaps in the Capability Platform (product, market access, technology, etc.). As I always preach, a discipline process truly empowers the organization to innovate and grow.

Increasingly, the public face of International Business Machines Corp. is that of Steve Mills.

Mr. Mills heads IBM's rich and acquisition-hungry software unit, which has buoyed results in recent quarters. He frequently represents the company at investor conferences and software-customer gatherings, and his rising profile reflects a new reality at the technology giant.
IBM still gets most of its reputation from its computers and most of its revenue from services, but most of its profit growth comes from software. After 44 software acquisitions since 2000 for about $9.5 billion, the company is trolling for more (major M&A activity)

Mr. Mills says his group is likely to become increasingly visible because more than half of its revenue is finally coming from fast-growing software areas, offsetting declines in old mainframe-related software.

"I've been doing off-Broadway for years," says Mr. Mills. "Now, it's like I have a hit series."

On a stand-alone basis, IBM would have had the second-highest revenue of any software company after Microsoft Corp. Software revenue grew 14.4% in the fourth quarter and reached $18.2 billion last year. Software accounts for only 20% of total revenue -- but 40% of earnings. Fast-growing IBM brands include WebSphere, a variety of Internet tools for business, which gained 23% last year; Tivoli, which manages computer systems, up 26%; and Lotus, which makes email software, up 12%.

Mr. Mills is credited with helping to persuade the company to emphasize software, and with taking a disciplined approach to making and integrating acquisitions. IBM buys smaller, often closely held, companies with arcane products and little reputation outside the tech community (these are part of the selection criteria). The most it has paid for a company in the past six years is the $2.1 billion it laid out in 2002 for Rational Software, a maker of tools used by software developers.

The idea, Mr. Mills explains, is to buy companies with unique products that can grow faster when sold by IBM's giant sales force (organic growth). Mr. Mills says he won't buy a company just to get more salespeople or new customers, (inorganic growth) since IBM already sells some products to virtually all large enterprises. Instead, he tries to make sure they "can accelerate their revenue two or even three times" as fast as part of IBM.( these are part of the selection criteria)

Once acquired, companies are put through an integration process that was initiated in 2000 at Mr. Mills's instigation. (process)

John Patrick, a former software group executive, says that one of the keys to IBM's success in software was Mr. Mills's recognition in 1995 that the Internet would be used by big business for more than advertising. That led Mr. Mills to order programmers to develop its WebSphere software using open standards that other companies could easily link up with (open innovation example)-- a risky decision because it could have made it easy to replace it, Mr. Patrick says………

After acquiring a company, Mr. Mills's 5,000-person sales force has to move fast to get trained in the acquired software, and to pitch it to their customers. IBM says companies acquired from 2002 to 2004 averaged 25% revenue growth the year after they were acquired -- including closely held Candle Corp., which IBM bought for $430 million in June 2004 and saw its revenue surge to $300 million the subsequent year.

Six years ago, while acquiring database maker Informix, Mr. Mills ordered executives to keep a record of what worked and what didn't in order to standardize the way acquisitions are integrated (building the process) He also started IBM's sophisticated "signature selling system" that categorizes and tracks sales opportunities on a weekly basis. Some salesmen groused about the paperwork (typical reaction to building the process), but IBM later adopted the system for its entire sales force.

As soon as an acquisition is completed, IBM sends in a transition team. "Every employee gets an IBM employee as a buddy," Mr. Mills says (process). On the very day IBM completed its acquisition of Las Vegas-based SRD Inc. in 2005, founder Steve Jonas says the new owner renamed all SRD products. "There's a process called blue-washing," he says.
SRD specialized in software that helps casinos comb public and private databases to check whether a job applicant might be living at the same address as someone Nevada regulators had banned, or if a contractor had an arrest record. The U.S. Department of Homeland Security adopted the software after 2001 to check on suspected terrorists. Last year, Mr. Mills asked Mr. Jonas to speak about the products' uses at a presentation he made to IBM's top customers on Wall Street, opening up another potential market.

The road to such a successful transition started before the acquisition, Mr. Jonas says, when Mr. Mills spent time with him discussing the technology and how it fit with IBM products. He was, Mr. Jonas says, "paying attention."