Thursday, October 30, 2008

Cisco Changes Tack
In Takeover Game

WSJ, April 17, 2008; Page A1

One of the critical components to growing beyond your current Business Design is how best to build the “Capability Platform” required for success. Do you build the capabilities internally or do you buy them? This is an interesting article on how Cisco is facing this challenge as its growth slowed from its heyday and how it is altering its acquisition strategy going forward.

When Scott Weiss heard that tech behemoth Cisco Systems Inc. wanted to acquire an email-security company like his startup, he emailed a vow to his staff: "Said acquiree will not be us."

Cisco was famous for fueling its stellar growth by buying dozens of companies and digesting them completely, installing its own executives and leaving little trace of a target's identity. The method made Cisco the envy of the technology world, where so many acquisitions go awry. Mr. Weiss feared losing control of the firm he co-founded, IronPort Systems Inc. When Cisco made an offer in early 2006, he declined.

Then last year, Mr. Weiss agreed to sell, for $830 million. His convictions hadn't shifted. Cisco's had.

The Silicon Valley icon has been remaking its acquisition strategy as it carefully tries to move into the 21st century's hot tech markets. The company ultimately offered Mr. Weiss an un-Cisco-like proposition: Cisco would buy IronPort, but let it operate as a stand-alone unit, with its own managers, brand name, engineers and salespeople.

"They wanted to make sure they didn't screw it up," says Mr. Weiss. This month, Cisco promoted Mr. Weiss, 42 years old, to head all of its security-technology business.
Cisco's new focus mirrors the efforts of other large technology firms -- including Microsoft Corp., Oracle Corp. and Sun Microsystems Inc. -- to avoid losing their status in a new tech era in which growth is led by products powered by the Internet. Cisco's once-torrid quarterly growth has slowed to around 15% year-to-year, from between 30% and 40% or more early this decade.
Cisco's strategy shift is particularly striking because the company, the country's third-largest tech firm by market capitalization, is viewed as a bellwether for the industry. Chief executive John Chambers wants the networking giant to move beyond its core business -- making gearlike switches and routers that direct computer and telecom traffic over corporate networks. It's entering entirely new markets, such as online video and Web conferencing. (Changing the Business Design)

That means adding new pages to Cisco's much-admired acquisition playbook, which has been the subject of Harvard Business School studies. "We can't buy a company and tell it to do as we see fit if we don't have a true understanding of the marketplace," (critical!!!!) says Ned Hooper, Cisco's head of business development, who is leading the new acquisition and integration strategy.

Buying innovative small firms rather than developing new tech from scratch has long helped Cisco stay in front of the pack with a fresh stream of new products, while largely sidestepping the merger messes that peers often faced. (their strategy to build the Capability Platform) The San Jose, Calif., company has gobbled up 126 companies since its first acquisition in 1993, most of them small, privately held and closely related to its networking-equipment business.

'Platform' Deals

But in the past five years, while spending about $2.5 billion on 44 companies in its core business, Cisco has spent more than four times as much -- $11 billion -- on a handful of new-style acquisitions that it calls "platform" deals. (dramatic investment for the future -- the balance of protecting and growing what you have vs. driving new ground is very aggressive) Instead of its typical two months to integrate companies, Cisco plans to take 18 months to two years on more-unfamiliar businesses.

Cisco has long followed a strict guideline for buying other companies, targeting small businesses that establish early market leadership but are inexperienced in getting their wares to customers. Cisco has nearly six dozen full-time staffers dedicated to shepherding newcomers into the company. They make sure that within two months, newly acquired employees get a new Cisco boss, a Cisco bonus plan and a Cisco health plan. Salespeople are either laid off or folded into Cisco's own massive sales organization, while top managers are offered two-year retention contracts to help ease the transition. Acquired companies typically lose their brand names.

Cisco began experimenting with a new approach in 2003, when it shelled out $500 million to acquire Linksys Group Inc., which makes home-networking equipment that allows multiple personal computers to share files and an Internet connection.

At the time, the most sophisticated Cisco networking gear cost more than $100,000, while Linksys's consumer products started at less than $100. Linksys also sold its products through retailers, with which Cisco had little experience. To avoid inadvertently damaging the newly acquired company, Cisco has kept in place the Linksys brand name, Linksys manufacturing agreements and its sales team. (really important)

Cisco used the same hands-off method when it bought set-top box manufacturer Scientific-Atlanta Inc. in 2006 for $6.9 billion. While most of Cisco's acquirees are within 20 miles of its Silicon Valley headquarters and have fewer than 300 employees, Scientific-Atlanta was based in Lawrenceville, Ga., and had 7,600 employees.

To deal with the distance and size of the acquisition, Cisco tossed out its playbook, which called for a single executive to manage the process. Instead, it parceled out different units and departments among a tiny platoon of Cisco managers.

Last year, Cisco snapped up a 2,200-person online conferencing start-up, WebEx Communications Inc., for $3.2 billion. Cisco allowed WebEx to keep its Santa Clara, Calif., headquarters and left in place WebEx's sales team.

Market Leader

There are signs the new tack is working. Scientific-Atlanta contributed $2.76 billion, or about 8%, to Cisco's 2007 revenue of $34.9 billion. The company doesn't break out numbers for its Linksys or WebEx divisions, but Linksys remains a market leader with a strong brand.

To be sure, as Cisco seeks farther-flung businesses, the company faces the possibility of falling into integration morasses it had dodged. The slow pacing for some of the "platform" integrations suggests they're not as easy. Cisco decided to take a year and a half learning Scientific-Atlanta's business before sitting down with its executives to discuss detailed sales synergies. Mr. Chambers last year said publicly that he would phase out the Linksys name, but later recanted, saying Cisco's name hadn't made enough inroads with consumers.

Sunday, October 26, 2008

In a New Age of Impatience, Cutting PC Start Time
Published: October 25, 2008

Sorry for the delay in posting, but we moved back down to Florida and Comcast cable acted like Comcast Cable—it took about a week to reengage the cable. This article appeared on the front page of the Now the New York Times talking about how the computer industry is dealing with dealing with a nagging problem of the time it takes to start up a computer. I immediately reflected on the Attribute Map we discussed in an earlier posting
which is briefly summarized here.


In an effort to further the discussion comparing competitive advantage vs. separation, I would like to introduce a very powerful tool developed by McGrath and MacMillan that is summarized in perhaps the greatest business book ever written – The Entrepreneurial Mindset. The tool is the Attribute Map and it shows the dynamic nature of how your target customers react to your offering’s attributes:

The labels going down the table –POSITIVE, NEGATIVE, OR NEUTRAL – describe the type of reaction from the customers. Obviously, the more positive and less negative the better. The labels on the top of the table –BASIC, DISCRIMINATORS, and/or ENERGIZERS – define the intensity of the reaction.

For the BASIC category:
- A POSITIVE defines table stakes – you need these attributes to play and you are conspicuous by their absence (Non Negotiable)
- A NEGATIVE defines attributes that the customer is willing to tolerate (Tolerable) if there is no other alternative.
- A NEUTRAL is one that has no or little impact (So What) on the customer but does add cost

- Differentiate between competitors to influence the purchase decision. The POSITIVE (Differentiator) attribute is in the positive direction and the NEGATIVE (Dissatisfier) is in the negative direction.
- The NEUTRAL is an influencer to the purchase decision but is not directly related to the purchase

- Attributes are so powerful that they overwhelm the purchase decision either positively –the Exciter – or negatively – the Enrager

I believe our current “patience” with the time it takes to startup a computer is currently a ‘TOLERABLE” situation. As the computer manufacturers shake up the market dynamics – when there is true improvement--people will no longer tolerate the wait and our feelings will move to a DISSATISFIER at the least. However, the competitive separation created by the early entrants with these new computers will eventually disappear as consumers begin to expect this from all systems ,i.e., “instantaneous” startups become a BASIC table stake

SAN FRANCISCO — It is the black hole of the digital age — the three minutes it can take for your computer to boot up, when there is nothing to do but wait, and wait, and wait some more before you can log on and begin multitasking at hyper-speed. (the critical attribute)
Some people stare at their screen and fidget. Others pace or grab a cup of coffee. “Half the time, I go brush my teeth,” (how we TOLERATE it) said Monica Loos, 40, who is starting a business selling stationery online from her home in San Francisco.

Now the computer industry says it wants to give back some of those precious seconds. In coming months, the world’s major PC makers plan to introduce a new generation of quick-start computers, spotting a marketing opportunity in society’s short attention span.

“It’s ridiculous to ask people to wait a couple of minutes,” said Sergei Krupenin, executive director of marketing of DeviceVM, a company that makes a quick-boot program for PC makers. “People want instant-on.”

Hewlett-Packard, Dell and Lenovo are rolling out machines that give people access to basic functions like e-mail and a Web browser in 30 seconds or less. Asus, a Taiwanese company that is the world’s largest maker of the circuit boards at the center of every PC, has begun building faster-booting software into its entire product line.

Even Microsoft, whose bloated Windows software is often blamed for sluggish start times, has pledged to do its part in the next version of the operating system, saying on a company blog that “a very good system is one that boots in under 15 seconds.” Today only 35 percent of machines running the latest version of Windows, called Vista, boot in 30 seconds or less, the blog notes. (Apple Macintoshes tend to boot more quickly than comparable Windows machines but still feel glacially slow to most users.)

There is nothing new about frustration with start-up times, which can be many minutes. But the agitation seems more intense than in the pre-Internet days. Back then, people felt less urgency to log on to their solitary, unconnected machines. Now the destination is the vast world of the Web, and the computer industry says the fast-boot systems cater to an information-addicted society that is agitated by even a moment of downtime. (the changing dynamic)

Yet it is a condition that the technology industry — with smartphones and other always-on gadgets — helped create, said Gary Small, a professor at the Semel Institute for Neuroscience and Human Behavior at the University of California, Los Angeles. “Our brains have become impatient with the boot-up process,” Dr. Small said. “We have been spoiled by the hand-held devices.”
PC makers are not merely out to ease our data anxieties with the new machines. They want to help themselves, too. The industry has grown so competitive, and profit margins so thin, that each company is looking for any advantage it can trumpet. Computer makers say the battle for boot-up bragging rights could resemble the auto industry’s race to shave tenths of a second from the time it takes a car to go from 0 to 60 miles an hour. (but will it create sustainable competitive separation or eventually “just” fundamentally improve performance for the consumers but still leaving thin margins as this attribute becomes a BASIC table stake.)

Hewlett-Packard research shows that when boot times exceed more than a few minutes, users have an exaggerated sense of the time it takes. Four or five minutes can feel like an eternity.
In June, H.P. introduced a new kind of fast-booting laptop, for $1,200, and the company says the technology is destined to spread quickly. Right now, H.P.’s goal is to offer PCs that boot in 30 to 45 seconds, said Philip McKinney, chief technology officer for the company’s personal systems group. “In 18 months, you’ve got to be 20 to 30 seconds.”

Until Microsoft comes up with a way to greatly shorten the time it takes to load Windows, PC makers are speeding up boot times using programs that bypass Windows. The systems vary technically, but they all rely on a version of an operating system called Linux that gives users quick access to Web browsing and other basic functions of their computer. In some cases, Windows never boots, while in others, Windows starts in the background.

DeviceVM, the maker of a fast-boot program called Splashtop, says it charges PC makers $1 to $2 a machine for its software. The company hopes to make more revenue over the long term by charging other software providers that want to include their applications in the menu of programs accessible without a full boot.

Of course, some computer users try to avoid slow boot times by never turning off their machines; they simply leave them in standby mode. But PCs sometimes have a hard time waking up from standby and tend to crash the longer they run without rebooting. Leaving a machine on also wastes electricity and, for laptops, can drain the battery.

Victor Dailey, 54, a computer engineer from San Diego who works at NASA, has an alternative prescription for boot-up anxiety: “I’ll do the cigarettes and a cup of coffee while I wait.”
But he would much rather skip the caffeine and nicotine and get his fix from his computer. “If you could just open it up immediately, just like you do with your cellphone, and text somebody or whatever and close it back up, that would be ideal,” he said.

Monday, October 06, 2008

Creativity and the Role of the Leader
Your organization could use a bigger dose of creativity. Here’s what to do about it.
by Teresa M. Amabile and Mukti Khaire
HBR, Reprint: R0810G

This is a great article that delves into the critical role of leadership in driving creativity and therefore growth in their companies. I strongly recommend reading the full article.

Creativity has always been at the heart of business, but until now it hasn’t been at the top of the management agenda. By definition the ability to create something novel and appropriate, creativity is essential to the entrepreneurship that gets new businesses started and that sustains the best companies after they have reached global scale. But perhaps because creativity was considered unmanageable—too elusive and intangible to pin down—or because concentrating on it produced a less immediate payoff than improving execution, it hasn’t been the focus of most managers’ attention.
A summary is:

A Manager’s Guide to Increasing Innovation
If you’re trying to enhance creativity...

...remember that you are not the sole fount of ideas.
Be the appreciative audience.
Ask the inspiring questions.
Allow ideas to bubble up from the workforce.

...enable collaboration.
Combat the lone inventor myth.
Define “superstar” as someone who helps others succeed.
Use “coordination totems”—metaphors, analogies, and stories—to help teams conceptualize together.

...enhance diversity.
Get people with different backgrounds and expertise to work together.
Encourage individuals to gain diverse experiences that will increase their creativity.
Open up the organization to outside creative contributors. the stages of creativity and tend to their different needs.
Avoid process management in the fuzzy front end.
Provide sufficient time and resources for exploration.
Manage the handoff to commercialization.

...accept the inevitability and utility of failure.
Create psychological safety to maximize learning from failure.
Recognize the different kinds of failure and how they can be useful.
Create good mechanisms for filtering ideas and killing dead-end projects.

...motivate with intellectual challenge.
Protect the front end from commercial pressure.
Clear paths through the bureaucracy for creative ideas.
Let people do “good work.”
Show the higher purpose of projects whenever possible.
Grant as much independence as possible.

Thursday, October 02, 2008

Three Steps to Innovating in Struggling Industries
Posted by Scott Anthony on September 10, 2008 9:51 AM

The issues discussed here are consistent with what we have been talking about all along. It is particularly important to: lower the cost of innovation; tap into the full breadth of talent and ideas; and, resource critical projects sufficiently to win. I know these are very challenging times and thinking 2 to 3 years out is not on everyone’s agenda when you and/or your customers are having trouble financing inventories. However, we must work to avoid hitting the “Stall Point ”,i.e., when growth approaches zero for an extended period since all the data suggests it is VERY difficult to return to growth once this tipping point is reached either for your company or industry.

Innovation is tough in the best of times. What do you do when times are tough and your industry's very survival is in question? (Don’t wait until you are near the end)

A newspaper executive asked me that question during a discussion this past Monday. While just about every organization is feeling some economic pinch these days, few have it as tough as newspaper companies. Print circulation continues to slide. Advertisers are fleeing to the Internet, where newspapers continue to lose ground to Google, Yahoo!, and countless others.
Newspaper companies are experimenting with new approaches to disseminating content, but those ventures aren't getting big enough quickly enough to offset declines in the core business.
To their credit, most newspaper executives with whom I've spoken recognize that they have to keep pushing. They know they have little hope of maintaining their relevance if they don't innovate. Yet, the pressure to staunch the bleeding in the core business makes it incredibly difficult to do things differently, to commit to innovating.

It's a tough challenge, and it highlights for other businesses that maybe aren't in the dire situation that newspapers are just how important it is to start innovation efforts when times are good, when you have the time and resources to allow your efforts to reach escape velocity. Had the newspaper industry really pushed the innovation agenda in the mid 1990s, we would be having a very different conversation today.

Telling people they should have done something a decade ago isn't particularly helpful, of course. So I provided the newspaper executive with the following pieces of advice:

1. Lower the cost of testing. (“Manage the cost, not the rate of failure”) Chapter 8 of our new book, The Innovator's Guide to Growth, suggested that companies should "invest a little to learn a lot" about key assumptions. When resources get scarce, you have to be even more creative about how to test critical assumptions. Fortunately, it has never been easier to develop and test an idea quickly and cheaply, using tools such as employee focus groups, low-resolution mock-ups, simulations, and "good enough" beta tests.

2. Creatively tap into outside resources. (Open innovation) A lack of financial resources makes innovation difficult, but a lack of human resources to work on ideas makes innovation impossible. Resource-constrained companies need to develop creative ways to find bodies to work on innovation efforts. Newspaper companies can think about tapping into readers, family members, and even retired employees to help push ideas forward. Also, instead of feeling the need to create every new business themselves, newspapers can tag along with concepts pioneered by other companies, like they have done with real estate provider Zillow.

3. Ruthlessly prune the portfolio.(tough portfolio analyses are critical to enable resourcing these critical growth initiative to win while meeting the shorter term goal) Most companies that claim to have no resources actually have plenty of resources--those resources are just tied up in the wrong activities. When times are tough, companies have to be ruthless about weeding the innovation portfolio. They have to shut down the least promising ideas early so they can really focus on the ideas with the most potential (I wrote about the innovation portfolio in more depth on Even though there's a risk that you might prematurely kill a great idea, better to kill one great idea early than to lose an entire innovation program because of lack of progress.

Unfortunately, I think things are going to stay ugly in the newspaper industry for some time to come. Companies that creatively push the innovation envelope have the greatest chance of emerging from today's troubling times as viable competitors. Those that don't will have marginally better fortunes over the next 12-18 months, but will lose the long-term ability to compete. (probably trues for any company in any industry)