Thursday, February 28, 2008

InnovationTools - Interview with Mark Turrell
Interview with Mark Turrell
InnovationTools - 9 November 2005
By Chuck Frey

This is a great discussion that covers many of the issues we constantly raise in our blog and classes: Going outside the company for new ideas; the important role of leadership in driving innovation and growth; and, the need to effectively manage business risk and uncertainty. I did not include my usual characterization picture because this posting touches on all the issues –leadership, corporate climate, ideas, and process

Mark Turrell is CEO of Imaginatik, a developer of enterprise idea management applications. He has spent a lot of time researching innovation, investigating new business processes, new product development methods, and innovation metrics. He is truly one of the "deep thinkers" of business innovation. In this interview with InnovationTools founder Chuck Frey, Mark shares his insights on trends in the world of innovation.

Frey: You consume a lot of information about innovation, as well as consulting with some of the world's most innovative organizations. What trends do you see in the world of innovation today?

I see two distinct types of company: bleeding edge innovators and the catch-up clan. The very best companies in the world may be investing many times more resources into innovation, but innovation is such a tricky beast that even the best have problems - just different problems from the rest of us.

The catch-up clan comprise of the bulk of organizations who have finally woken up to the inevitable need to grow (or survive) through innovation.

The trends I am looking out for deal with open innovation (tapping into the outside world), enterprise innovation (tapping into all employees, not just one or two divisions), and increasing investments in the Concept Development or Pre-Project phase of the innovation pipeline.

The best trend of all is innovation itself. It is impossible to pick up a business magazine, newspaper - heck, even a government report - without reading about the importance of innovation. This time there is an explicit focus on systematic and purposeful innovation initiatives, supported by good process.

Frey: How has CEO-level recognition of the importance of innovation evolved in the last several years?

Many innovation observers criticize CEOs for not paying enough attention to innovation. In my view, this is simply untrue. They have invested in many types of innovation activity in the past, they have just been led astray.

In the early 1990s, innovation was all about executive retreats and brainstorming techniques. In the mid-1990s, focus switched to establishing a 'culture of innovation', and we witnessed companies executing large-scale programs to promote creative thinking. Sadly this did not work - a workforce needs direction, (the most critical role of leadership) and a baseball cap with 'THINK' written on it does not make it so.

In the late 1990s, CEOs began investing heavily in new ventures, particularly dotcoms. In retrospect this may have been somewhat crazy, but it showed just how much money was available to innovation when the C-level suite took an interest.

The early 2000s kicked off with a lot of expensive, project-driven disruptive innovation initiatives. Clayton Christensen was the poster child of this innovation wave, the Innovators Solution the bible. Things all went horribly wrong, as they tend to do when you over-focus on one area. (you really want to strive for a portfolio of innovation and growth projects) Many disruptions are too early for the market, or too much for the executive team to approve, and so most of these groups disbanded.

And that brings us to today. 70% of the companies we speak to have calculated revenue growth gaps - they know how big the prize is if they succeed. Top companies use a balanced set of innovation metrics to drive innovation from the top. Grassroots initiatives have either become a vital element in driving culture change, or have withered to nothing ("grassrots innovation" as I lovingly call it).

CEOs are now the instigators of more innovation process initiatives than we have seen before. Maybe we should not be surprised - often they are the only people in the organization that truly have an eye to the future that lies a mere two to five years out.

Frey: Why do you think it's so hard for companies to become good at innovation?

Arrogance has to be up there. Too many newly minted Innovation Directors believe that they can come up with the world's best methods by themselves - and they are often plain wrong. You can only innovate well if you are open to outside thinking - ideas, concepts, and innovation processes.

I believe the innovation process itself is ripe for innovation. It has always amazed me that the failure rate for new product launches has not budged from 65% in the last decade - in spite of the millions spent on stage-gate and other new product development processes. Either people are stupid… or the methods are wrong. I am on the side of the people on this one.

I do believe that innovation, by its nature, will always be difficult. It is a discipline that deals with uncertainty, with risk, and with the often genuine fear of personal career damage. (I believe this is the most profound barrier in most companies!!) The innovation process itself is designed to handle a massive attrition rate from raw idea to product-in-market, and yet we as humans find it hard to distance ourselves from the ideas or projects we like. If we could take the human being out of the innovation equation, we would all be fine - but where would the fun (or reality) be in that?

Monday, February 18, 2008

Great Questions for Sparking Innovation
A process is just a series of logical questions to take you from point A to B. This is a great summary from Rita McGrath’s (Columbia Business School) blog of a great article from HBR.

December’s Harvard Business Review ((Reprint: R0712E ) contained a terrific and thought provoking article co-authored by Trish Clifford and some of her colleagues at McKinsey)
Essentially, they argue that most attempts at out of the box thinking are futile because the problem space is just too enormous. Instead, they recommend using analogies, well-framed questions and lots of structure to get people to think differently. The article is definitely worth grabbing if you are trying to come up with new ways to generate ideas.

In a sidebar, the article lists 21 Great Questions for developing new products.
These are:

De-average buyers and users
• Which customers use or purchase our product in the most unusual way?
• Do any customers need vastly more or less sales and service attention than most?
• For which customers are the support costs (order entry, tracking, customer-specific design) either unusually high or unusually low?
• Could we still meet the needs of a significant subset of customers if we stripped 25% of the hard or soft costs out of our product?
• Who spends at least 50% of what our product costs to adapt it to their specific needs?

Examine binding constraints
• What is the biggest hassle of purchasing or using our product?
• What are some examples of ad hoc modifications that customers have made to our product?
• For which current customers is our product least suited?
• What what particular usage occasions is our product least suited?
• Which customers does the industry prefer not to serve, and why?
• Which customers could be major users, if only we could remove one specific barrier we’ve never previously considered?

Explore unexpected successes
• Who uses our product in ways we never expected or intended?
• Who uses our product in surprisingly large quantities?

Imagine perfection
• How would we do things differently if we had perfect information about our buyers, usage, distribution channels and so on?
• How would our product ch ange if it were tailored for every customer?
Look beyond the boundaries of our business
• Who else is dealing with the same generic problem as we are, but for an entirely different reason? How have they addressed it?
• What major breakthroughs in efficiency or effectiveness have we made in our business that could be applied in another industry?
• What information about customers and product use is created as a by-product of our business that could be the key ot radically improving the economics of another business?

Revisit the premises underlying our processes and products
• Which technologies embedded in our product have changed the most since the product was last redesigned?
• Which technologies underlying our production processes have changed the most since we last rebuilt our manufacturing and distribution systems?
• Which customers’ needs are shifting most rapidly? What will they be in five years?

Tuesday, February 12, 2008

Facing Free Software, Microsoft Looks to Yahoo
Published :NYT, February 9, 2008

In the last posting, we talked about a deeper, more profound reason for Microsoft’s attempt to buy Yahoo. Additionally, Cyndi Greenglass questioned how Microsoft (MS) could grow “organically” after this acquisition. Although there is no right or wrong answer, my belief is that the component of this acquisition that focuses on combining Yahoo’s advertising dollar share with MS and reducing costs is a classic M&A growth strategy; at best it is short term and not sustainable. The bigger part from MS’s perspective is using Yahoo’s platform to accomplish the things highlighted below. This, I believe, is a classic “organic growth” strategy where MS is filling a capability gap via acquisition.

I would like to welcome the participants of Kellogg’s executive education class on New Product Development at the Miami campus (very smart considering the wind-chill in Chicago is -15 degrees); I suggest visiting the blog site to catch up. The Kellogg School is considering expanding the audience for our blog which will be great for all of us. We are also considering expanding the topic base as well and welcome any suggestions form our community

SAN FRANCISCO — Nearly a quarter-century ago, the mantra “information wants to be free” heralded an era in which news, entertainment and personal communications would flow at no charge over the Internet. Now comes a new rallying cry: software wants to be free. Or, as the tech insiders say, it wants to be “zero dollar.”

A growing number of consumers are paying just that — nothing. This is the Internet’s latest phase: people using freely distributed applications, from e-mail and word processing programs to spreadsheets, games and financial management tools. They run on distant, massive and shared data centers (the cloud), and users of the services pay with their attention to ads, not cash.

While such services have been emerging for years, their rapid adoption has been an important but largely overlooked driver of the $44.6 billion hostile bid that Microsoft made to take over Yahoo this week.
That proposed deal would give Microsoft access to Yahoo’s vast news, information, search and advertising network — and the ability to compete more squarely with Google.
But a merger would also allow Microsoft to adapt its empire to compete in a world of low-cost Internet-centered software.

Yahoo’s huge user base could provide the audience and the infrastructure for Microsoft to change how it distributes its products and charges for them.
(filling the capability gap)

“Microsoft makes its money selling licenses to millions and millions of people who install it on individual hard drives,” said Nicholas Carr, a former editor at The Harvard Business Review and author of “The Big Switch,” a book about the transition to what the technology industry calls cloud computing.

“Most of what you need is on the Internet — and it’s free,” he said. “There are early warning signs that the traditional Microsoft programs are losing their grip.”
Certainly, analysts said, Microsoft’s revenue — $51 billion last year, most of it from software — is not yet suffering in any meaningful way.

The company said, to the contrary, that business is booming, and that Microsoft Office, a flagship product, is having a record-breaking year.(this is exactly the time companies should make this type of strategic investment – before you are in crisis)
“Last year was our best year, and this year is better,” said Chris Capossela, a Microsoft vice president with the Office division.

At the same time, though, the company has lowered prices. Last year it began selling its $120 student-teacher edition to mainstream consumers, who had been asked to pay more than $300 for a similar product.

The bulk of the company’s profit comes from selling to corporations, which unlike consumers may be slower to adapt to a system in which proprietary data is not stored in corporate-owned data centers.

Microsoft said that corporate customers prefer using software that they are familiar with and that provides more functions and better security.
But the corporate business, too, is coming under increasing assault from lower-cost Internet competitors, including Microsoft’s archnemesis, Google.

On Thursday, Google took its attack to a new level. It released Google Apps Team Edition — a version of its productivity software that includes word processing, spreadsheet and calendar programs. In a form of guerrilla marketing, the fans of Google Docs can take it into the office, bypassing or perhaps influencing decisions made by corporate executives, who until now have overwhelmingly bought Microsoft software.

Google, while it gives such software free to consumers, charges corporations for a premium edition, though the fee is less than what Microsoft charges for productivity software, analysts said.
The change is coming not from corporations but on the computers of a growing base of individuals who increasingly expect their software to be free — and for it to be processed and managed over the Internet. ………
……… “If Microsoft had to start over today, it wouldn’t even think about charging money for its software,” said Yun Kim, an industry analyst with Pacific Growth Equities. “Nobody in their right mind is developing a business in the consumer market to charge” for software.
Mr. Kim said that he expected Microsoft at some point to introduce a free ad-supported version of Office for consumers, though the company insists that it has no such intention.
Mr. Kim, however, expects that Microsoft’s corporate business is more entrenched and resilient, and less susceptible to the influences of free or ad-supported cloud computing
. (this could be a powerful segmentation strategy for MS)……..

.......But the relative quality of Microsoft’s software continues to attract customers, argued J. P. Gownder, an industry analyst with Forrester Research. He said that Microsoft has an opportunity to develop a hybrid version of its software that combines the convenience of cloud computing with the security of processing on the desktop, thus helping it maintain and further its empire. (powerful advantage for MS vs. even Google)

“This is the predominant reason why Microsoft has gone after Yahoo,” Mr. Gownder said. “The ad revenue is a nice short-term achievement, but in the long run it is much more about delivering apps over the Web.”

Saturday, February 02, 2008

Yahoo Offer Is Strategy Shift for Microsoft
Published: NYT, February 2, 2008

Remember two of my recent postings highlighting the challenges facing Microsoft against Google in “the cloud”. My guess is that Microsoft is looking well beyond the current way of attracting ad revenue from the internet and will leverage their incredibly strong software capability with Yahoo’s access and reach – imagine the current Office Suite available on demand on line!

Google Gets Ready to Rumble With Microsoft 12/27/07

But on Friday, the brand of capitalism practiced by his company’s chief executive, Steven A. Ballmer, came with a decidedly hard edge.

Microsoft’s $44.6 billion bid for Yahoo, pushed by Mr. Ballmer, was hostile. And during a conference call Friday with analysts and in a subsequent interview, he never once uttered the word “Google,” referring to the Internet search giant that has humbled Microsoft only as “the leader” in the online world.

Mr. Ballmer, 51, is a famously fierce competitor. To him, failure is never an option. “If we don’t get it right at first, we’ll just keep coming and coming and coming and coming,” he said in an earlier interview.

Microsoft’s bid for Yahoo is thus a tacit, and difficult, admission that the company did not get its online business right. The bid also represents a sharp departure from Microsoft’s well-thumbed playbook of building new businesses on its own. In the past, when Microsoft moved beyond its stronghold in desktop computer software — and into areas like video games and data-center software — it has done so mainly with in-house investment, patience and tenacity.
Microsoft stuck to that formula for years with its Internet search and advertising — without success. It did buy an online ad agency, aQuantive, last May for $6 billion, a sizable move given Microsoft’s tradition of making small, niche-filling acquisitions.
The losses, however, continue to mount in Microsoft’s online business, while Google makes billions in profit.

The Google challenge to Microsoft extends beyond online search and advertising. Google is at the forefront of companies offering software as online services, including Web-based alternatives to Microsoft’s lucrative desktop products like word processing, spreadsheets and presentation programs………..
…….And Mr. Ballmer clearly views the Yahoo bid, and the Google threat, in broad terms. A Yahoo deal, he said, would represent “the next major milestone in Microsoft’s transformation.”
Microsoft, too, is moving to offer more software features as Web-based services, though it sees a future that revolves around both personal computer software and online services.
Microsoft has been forced to adopt a new strategy for a different kind of threat than it has confronted, and usually dispatched, in the past.

“This shows just how worried Microsoft is by Google,” said David B. Yoffie, a professor at the Harvard Business School. “Microsoft has faced competitive threats before, but none with the size, strength, profitability and momentum of Google.”………
……….Microsoft, analysts say, finds itself in a battle where improving its search algorithms and online ad software is not going to be enough. Google has impressive technology, to be sure, but it also enjoys the torrid growth that falls to the leader in highly networked businesses like Internet search and ads.

Google’s edge in search traffic then attracts more advertisers and Web publishers, so there are more ads in Google’s auctions, which makes them more efficient. Each advantage reinforces the other, in what economists call “network effects.”

One measure of the network advantage, analysts estimate, is that Google collects 40 percent to 100 percent more revenue per search than either Yahoo or Microsoft.
Microsoft, of course, is no stranger to the power of network effects. It was the master of that strategy in the personal computer era. Its early lead in PC operating systems, and its efforts to encourage independent software developers to write applications for Windows, paved the way for Microsoft’s dominance.