Thursday, December 27, 2007

Google Gets Ready to Rumble With Microsoft
Published: NYT, December 16, 2007

This excerpt is longer than my usual posting but the lessons and story are profound. I work with Microsoft and am hard pressed to believe that the people from Google are smarter or more creative. I also think Microsoft’s management team is as good as any. The fundamental issue, however, is reflected in this following chart.

Microsoft’s market cap is based on the success of their past business model while Google has very few if any legacy issues. This difference permeates the story.

I would like to highlight to our growing blog audience that our new executive ed class “Implementing Organic Growth Strategies” is being offered April 27 to 30, 2008 at the Allen Center and is beginning to fill up. We developed three new teaching cases for this class and have a world class set of faculty teaching it!

Finally, I would like to wish everyone a great holiday season and Happy New Year!!

……... With its ample resources and eye for new markets, Google has begun offering online products that strike at the core of Microsoft’s financial might: popular computing tools like word processing applications and spreadsheets.

The growing confrontation between Google and Microsoft promises to be an epic business battle. It is likely to shape the prosperity and progress of both companies, and also inform how consumers and corporations work, shop, communicate and go about their digital lives. Google sees all of this happening on remote servers in faraway data centers, accessible over the Web by an array of wired and wireless devices — a setup known as cloud computing. Microsoft sees a Web future as well, but one whose center of gravity remains firmly tethered to its desktop PC software. Therein lies the conflict……..
………there was no thought of a Microsoft takedown when, earlier this year, Google introduced a package of online software offerings, called Google Apps, that includes e-mail, instant messaging, calendars, word processing and spreadsheets. They are simpler versions of the pricey programs that make up Microsoft’s lucrative Office business, and Google is offering them free to consumers….

.......“For most people,” he (Mr. Schmidt, Google’s CEO) says, “computers are complex and unreliable,” given to crashing and afflicted with viruses. If Google can deliver computing services over the Web, then “it will be a real improvement in people’s lives,” he says.

To explain, Mr. Schmidt steps up to a white board. He draws a rectangle and rattles off a list of things that can be done in the Web-based cloud, and he notes that this list is expanding as Internet connection speeds become faster and Internet software improves. In a sliver of the rectangle, about 10 percent, he marks off what can’t be done in the cloud, like high-end graphics processing. So, in Google’s thinking, will 90 percent of computing eventually reside in the cloud?
“In our view, yes,” Mr. Schmidt says. “It’s a 90-10 thing.” Inside the cloud resides “almost everything you do in a company, almost everything a knowledge worker does.”

Mr. Schmidt clearly believes that the arcs of technology and history are in Google’s corner, no matter how hard he tries to avoid mooning the giant. Microsoft, of course, isn’t planning to merely stand still. It has spent billions trying to catch Google in search and Web advertising, so far without success. And the companies are also fighting it out in promising new fields as varied as Web maps, online video and cell phone software.

“The fundamental Google model is to try to change all the rules of the software world,”
says David B. Yoffie, a professor at the Harvard Business School. If Google succeeds, Mr. Yoffie says, “a lot of the value that Microsoft provides today is potentially obsolete.”

At Microsoft, Mr. Schmidt’s remarks are fighting words. Traditional software installed on personal computers is where Microsoft makes its living, and its executives see the prospect of 90 percent of computing tasks migrating to the Web-based cloud as a fantasy. (This is the big question where Google really ha nothing to lose and everything to gain while Microsoft maybe “betting the farm”)
“It’s, of course, totally inaccurate compared with where the market is today and where the market is headed,” says Jeff Raikes, president of Microsoft’s business division, which includes the Office products.

TO Mr. Raikes, the company’s third-longest-serving executive, after Mr. Gates and Mr. Ballmer, the Google challenge is an attack on Microsoft that is both misguided and arrogant. “The focus is on competitive self-interest; it’s on trying to undermine Microsoft, rather than what customers want to do,” he says. ( I am not sure about this)

Microsoft, Mr. Raikes notes, has spent years and billions of dollars in product development and customer research, studying in minute detail how individual workers and companies use software. What they want, he says, is the desktop programs and features of Microsoft Office, and the proof is in the marketplace. “I mean, we have more than 500 million people who are using Microsoft Office tools,” he says.

Indeed, Microsoft is the wealthy incumbent with a huge lead in the market for personal productivity software, with a share of more than 90 percent. But the Google challenge, industry analysts say, is not so much a head-to-head confrontation with Microsoft in its desktop stronghold as it is a long-term shift toward Web software, which operates with different principles and economics.
Analysts note that Google is a different competitor from others Microsoft has dispatched in recent years: it is bigger, faster-growing, loaded with cash and a magnet for talent. And the technology of the Google cloud opens doors. Its vast data centers are designed by Google engineers for efficiency, speed and low cost, giving the company an edge in computing firepower and allowing it to add offerings inexpensively.

“Once you have those data centers, you want to go out and develop complementary products and services,” says Hal R. Varian, a former professor at the University of California, Berkeley, who is Google’s chief economist. They can be offered free or at minimal cost to users, he says, because they bring more traffic to Google, generating more search and ad revenue.
Google, it seems, has a promising opening against Microsoft. But tilting at a giant and taking down a giant are very different things.

Microsoft, of course, isn’t standing still. Just as it squelched the first Internet challenge in the 1990s by linking Web browsing software to its mainstay products, it is now adopting a similar strategy for cloud computing by adding Internet features to its offerings. It is moving cautiously on this front, however, to avoid eroding the profitability of its desktop franchise. (This could be their undoing)

More than any other Google foray, providing Web-based software to workers for communication, collaboration and documents promises to be the acid test of how far Google can go beyond Internet search. Will two of its formulas — its distinctive, hurry-up model of building products and services, and its rapid-fire approach to recruiting and innovation — succeed in new arenas? …….
………VELOCITY does, indeed, matter, and Google deploys it to great effect. Conventional software is typically built, tested and shipped in two- or three-year product cycles. Inside Google, Mr. Schmidt says, there are no two-year plans. Its product road maps look ahead only four or five months at most. And, Mr. Schmidt says, the only plans “anybody believes in go through the end of this quarter.”
(A sustainable growth engine is all about velocity and Microsoft’s business model does not drive it like Google’s)

Google maintains that pace courtesy of the cloud. With a vast majority of its products Web-based, it doesn’t wait to ship discs or load programs onto personal computers. Inside the company, late stages of product development are sometimes punctuated by 24-to-48-hour marathon programming sessions known as “hack-a-thons.” The company sometimes invites outside engineers to these sessions to encourage independent software developers to use Google technologies as platforms for their own products………
........MR. SCHMIDT readily concedes that cloud computing won’t happen overnight. Big companies change habits slowly, as do older consumers. Clever software is needed — and under development, he says — to overcome other shortcomings like the “airplane issue,” or how users can keep working when they find themselves unable to get online.

Yet small and midsize companies, as well as universities and individuals — in other words, a majority of computer users — could shift toward Web-based cloud computing fairly quickly, Mr. Schmidt contends. Small businesses, he says, could greatly reduce their costs and technology headaches by adopting the Web offerings now available from Google and others.

“It makes no sense to run your own computers if you are a small business starting up,” he says. “You’d be crazy to buy packaged software.”
Still, in order to succeed, Google needs to win a broad array of converts, including corporations. That effort is led by Dave Girouard, the general manager of Google’s enterprise business, who joined the company in 2004, shortly after it decided to move beyond its search business and consumer focus.

Gmail, introduced just after Mr. Girouard arrived, illustrates Google’s strategic evolution as well as its increased willingness to take on Microsoft…….
According to, a research firm, Google Docs is gaining popularity. It had 1.6 million users in November, seven times as many as a year earlier. That’s a nice lift, but the Microsoft Office suite, containing programs like Word and Excel, is nearly two decades old and runs on some 500 million PCs. The reality is that even if Mr. Schmidt and Google are right about the potential of cloud computing in the workplace, Microsoft is still seen inside most companies as the safe choice.

Another crucial battleground for both companies is the university market, where the stakes are less about making money and more about winning the loyalty of students who might become valuable customers later in life. Google and Microsoft each offer free Web-based e-mail to universities, for example…….
……To be sure, Microsoft is not ceding cloud computing to Google. It is investing heavily in huge data centers and Web software. Inside Microsoft, there are engineers and product managers who sound a lot like Googlers…….
………The challenge for Microsoft is not the ability to do much of what Google does. Instead, the company faces a business quandary. The Microsoft approach is largely to try to link the Web to its desktop business — “software plus Internet services,” in its formulation. It will embrace the Web, while striving to maintain the revenue and profits from its desktop software businesses, the corporate gold mine. That is a smart strategy for Microsoft and its shareholders for now, but it may not be sustainable.

Assuming that competition heats up, Office may continue to be an outstanding product, but Microsoft may not be able to charge as much for it — just as low-cost personal computers eventually undercut the mainframe business, and traditional publishing and media companies have grappled with Internet distribution. The traditional products remain popular, but they become much less profitable………

………..Microsoft dismisses Google’s optimism as wishful thinking. Microsoft’s competitive tracking of the corporate market, says Mr. Raikes, the leader of the Office business, finds nothing like the momentum for Google that Mr. Girouard portrays. “It is not in any way, shape or form close to what he is suggesting,” Mr. Raikes says.

COUNTLESS decisions by corporate technology managers, office workers, university students and rank-and-file computer users of all kinds will ultimately determine Google’s success. How easy and inexpensive will it be to do e-mail, word processing, spreadsheets and team projects on Web software? Will high-speed network connections soon become as ubiquitous and reliable as Google seems to assume? Will companies, universities and individuals trust Google to hold corporate and personal information safely?

Thursday, December 13, 2007

Growing Big, Staying Fresh

Published: NYT, December 8, 2007

I would like to welcome the new alumni of our Driving Organic Growth Executive education program Kellogg’s Miami campus and the Indian school of Business (what an incredible place) in Hyderabad)
This is a great blurb on an issue facing most large companies. It is a profound challenge.
From India…….

The law of large numbers is frustrating for big companies.

A $100 million company whose sales climb by $50 million has increased revenue by 50 percent. A $10 billion company, with the same $50 million gain, has bumped up sales only one half of one percent.

As a result, argues Andrew S. Grove, the former chief executive of Intel, huge companies end up paying for their success.
“The reward is that they get big,” he writes in Portfolio magazine. “The punishment is that when they get big, it gets harder and harder for them to grow. And then their investors pile on the abuse.”
Mr. Grove, now a lecturer at Stanford’s business school and a senior adviser at Intel, suggests an antidote: large, successful firms can engage in what he calls “cross-boundary disruption.”

“Under certain conditions a firm can create a new growth spurt for itself by entering an entirely different industry,” he writes. “The target industry must be stagnant (I am not sure I agree with this) and populated with companies that cling to doing business the way they always have.”(This is inherent in Clayton Christensen’s work)

MANAGEMENT MODELS Is there a formal model that companies can follow to grow internally? Robert C. Wolcott and Michael J. Lippitz, both associated with Northwestern University’s business school, list in an article in the M.I.T. Sloan Management Review the following four models (These our guys at Kellogg and is a great article)

¶Opportunist. The company provides no formal process to follow. Various departments and individuals work on their own ideas and then seek corporate financing. This is what happens at Zimmer Holdings, a medical device company with more than $3 billion in sales.
Enabler. The company provides clear criteria for the sorts of things it would like developed, application guidelines for financing and support from senior management, then leaves it to employees to come up with new ideas. This, the authors say, is the model Google employs.
Producer. “A few companies such as I.B.M., Motorola and Cargill pursue corporate entrepreneurship by establishing and supporting formal organizations with significant dedicated funds or active influence over business unit funding.”
Advocate.(This was the model we used at DuPont where we developed and deployed the Market Driven Growth process) A company “strongly evangelizes” for corporate entrepreneurship but, as is the case at DuPont, leaves it up to the individual business units to provide financing and manage the process.

CHANGED FOR GOOD Radical transformation efforts inside big companies fail for any number of reasons, among them insufficient resources devoted to the task, a loss of interest by the chief executive or naysayer who are allowed to stay in place.

Two McKinsey consultants argue that focusing on two areas can improve the chances that a company will change for the better. The chief executive should set “an appropriate and inspiring aspiration” and then help mobilize “the flow of energy and ideas needed to drive the organization forward,” .(this is a critical leadership role) argue Josep Isern and Caroline Pung, writing in The McKinsey Quarterly.
Leaders must define the objective at the outset, delineating clear initiatives and painting a vivid picture of what success will look like, they contend.
“A good transformation story bridges the gap between top management and the rest of the organization,” they write. “Typically, using metaphor and analogies to explain what is at stake, it addresses three key aspects: the case for change, the challenges and opportunities ahead and the impact of change on the individuals.”
FINAL TAKE Marketers take note: Some 77 percent of Americans ages 49 to 55, Prevention writes — citing research from the McNeil Consumer Healthcare division of Johnson & Johnson — believe that “50 is the new 40.” PAUL B. BROWN, 53 (I prefer that “60 is the new 40”, Bob Cooper, 62)

Saturday, December 08, 2007

Former Xerox CEO FundedFabled PARC but FailedTo Harvest Innovations
While He Focused on the Bottom Line, Researchers Departed With IdeasTo Build Modern Computing
By STEPHEN MILLERWSJ, December 23, 2006; Page A6

This is an extreme example of what I find over and over in dealing with companies who want to innovate. It is so much more than generating ideas – the role of senior leadership and the right corporate climate is so important. We had a debate in our last Driving Organic Growth class on whether large companies can grow through innovation. Our contention is they can but they must recognize there our critical elements that must be addressed and, if needed, changes must be made. This article highlights some of those critical issues……

Peter McColough (became CEO in 1968) never powered up a personal computer, but he helped unleash the digital revolution. Many of the technologies at the center of today's computerized offices and homes -- the mouse, the laser printer, the local area network -- were first developed in the 1970s at a Silicon Valley skunk works he chartered at Xerox Corp(THEY HAD THE IDEAS).

But Xerox never reached Mr. McColough's goal of being at the forefront of what he called "the architecture of information." The company still best known for copiers pioneered in the 1950s and '60s failed to develop many of the technologies into marketable products. Instead, a herd of start-ups, often headed by the very workers at Xerox's Palo Alto Research Campus who had invented them, rumbled in and created industries in personal computers, networking, office software and others.

"If Xerox had known what it had and had taken advantage of its real opportunities, it could have been as big as IBM plus Microsoft plus Xerox combined -- and the largest high-technology company in the world,(THE LOST OPPORTUNITY)" Apple Computer Inc. co-founder Steve Jobs is quoted as saying in "Joe Wilson and the Creation of Xerox," a book by Charles Ellis about the company and its early chief executive.

The reasons for Xerox's inability to take advantage of its own inventions are debated in business schools to this day. Jacob Goldman, Xerox's chief scientist at the time who founded PARC, blames short-sighted managers unwilling to take chances on small-scale, unproven technologies.(THE IMPORTANCE OF FOCUSING ON SHORT AND LONG TERM…..UNDERSTANDING HOW TO MANAGE UNCERTAINTY IS ALSO A IMPORTANT COMPONENT OF THIS SHORT SIGHTEDNESS—THE MANAGERS DID NOT KNOW HOW TO DEAL WITH THESE NEW OPPORTUNITIES BECAUSE OF THE UNCERTAINTY. OPTIONS THINKING IS CRITICAL!) "They managed the company quarter to quarter and looked at the bottom line," Mr. Goldman says. "They weren't thinking about the future really."(OVER FOCUS ON HORIZON 1 PROJECTS…FOR OUR ALUMNI, RELATE THIS TO OUR DISCUSSION OF MANAGING THE INNOVATION PORTFOLIO)

Others cite a culture clash. "The guys on the West Coast were just laughing at the uptight suits there in freezing Rochester," Mr. Ellis says in an interview, referring to Xerox's headquarters then in that N.Y. city. "The straight-laced guys couldn't stand the idea that these hippies were coming to work at noon."(THE CORPORATE CLIMATE FAVORING INNOVATION MUST BE ESTABLISHED TO COMMERCIALIZE INNOVATION)

And some say part of the blame should go to Mr. McColough, who succeeded the outgoing Mr. Wilson as CEO in 1968 after joining the company then called Haloid Co. 14 years earlier. The bottom-line-oriented Mr. McColough, a graduate in the storied Harvard Business School class of '49 that produced an unprecedented number of CEOs, "lacked the will to back bold initiatives with hands-on perseverance,"(THE ROLE OF SENIOR LEADERS IS ABSOLUTELY CRITICAL) wrote Robert Alexander and Douglas Smith, authors of "Fumbling the Future," a dissection of Xerox's management during the 1970s……………

Instead of marketing new technology being developed at PARC, Xerox was pushing electronic typewriters to compete with IBM's Selectrics and the massive 9200 model copier that spat out two pages a second and cost $300 million to develop (THE ONLY REAL FOCUS WAS ON PROTECTING THEIR CURRENT BUSINESS – HORIZON 1. A GREAT EXAMPLE OF THE "INNOVATORS DILEMMA"). At the same time, IBM and Eastman Kodak Co. began to compete with Xerox in high-end copying, and Japanese rivals like Ricoh Co. introduced copiers for small business, a market Xerox had ignored

Saturday, December 01, 2007

Crisis is good!

Corporate Innovation Forum

A key challenge of leaders who want to stimulate innovation driven growth is creating the “burning bridge”. By definition, innovation means change and change is threatening to most people. Hence, sustainable innovation can be difficult at best and very challenging when the current business is doing well. From my own experience, I will never forget the conversation at the dinner table in the mid 80’s with a future CEO of the Boeing Corporation. They just came off two of their best years yet he knew that Airbus was going to be a powerful force but could not get the attention of his organization.

A highly interesting article in the last issue of Fortune (Sept. 5, 2005, no. 15) explains how Jong-Yong Yun, CEO of Samsung, is relentlessly building a culture of perpetual crisis at Samsung Electronics.

The South-Korean powerhouse has become the worlds largest consumer electronics company.

Without a doubt, Samsung is also a leading company on innovation, registering 1600 patents in 2004 (more than Intel), and spending a whopping 9% of revenue on R&D. The company employs around 27.000 researchers, 40% of it's global workforce. It seems like Yun's strategy to control the core technologies of digital convergence simply ensures that the profits keep flowing in.

However, according to Yun, it is not the corporate strategy that made Samsung so successful. Rather, it is the corporate culture that support the execution of this strategy that's vital.

Yun actively and relentlessly spreads a philosophy which emphasizes that disaster is just around the corner:
• Markets for today's cash cows may implode overnight.
• Reinvigorated competitors such as Apple, HP, Intel, Microsoft, Motorola and Sony may bounce back.
• Chinese companies will inevitably and aggressively take away the electronics commodity market (a strategy that Samsung itself knows very well from its history). Product innovation is the only remedy.
• A constant obsession with cutting cost and complexity is needed to lead the innovation pace in consumer electronics and be first to market.
• Success only increases the danger of complacency and eventual failure.
Is this way, the cultural ability to deal with crises can indeed become a competitive edge over companies that are less agile in dealing with disaster.