Tuesday, December 29, 2009

In India, Anxiety Over the Slow Pace of Innovation
NYT, December 9, 2009

This article highlights the importance of a supporting, societal, innovation infrastructure. It would be great if our friends in India could comment for our community--it is more than just being a great company:

"BANGALORE, India — In the United States and Europe, people worry that their
well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to
India. People here are also worried about the future. They fret that
Bangalore, and India more broadly, will remain a low-cost satellite office of
the West for the foreseeable future — more Scranton, Pa., in the American
television series “The Office,” than Silicon Valley.

Even as the rest of the world has come to admire, envy and fear India’s
outsourcing business and its technological prowess, many Indians are
disappointed that the country has not quickly moved up to more ambitious and
lucrative work from answering phones or writing software. Why, they worry,
hasn’t India produced a Google or an Apple?

Innovation is hard to measure, but academics who study it say India has
the potential to create trend-setting products but is not yet doing so.
Indians are granted about half as many American patents for inventions
as people and firms in Israel and China
. The country’s corporate and
government spending on research and development significantly lags behind that
of other nations. And venture capitalists finance far fewer companies here than
they do elsewhere.
“The same idea, if it’s born in Silicon Valley it goes
the distance,” said Nadathur S. Raghavan, a investor in start-ups and a founder
of Infosys, one of India’s most successful technology companies. “
it’s born in India it does not go the distance.”

Mr. Raghavan and others say India is held back by a financial
system that is reluctant to invest in unproven ideas, an education system that
emphasizes rote learning over problem solving, and a culture that looks down on
failure and unconventional career choices.

Sujai Karampuri is an Indian entrepreneur who has struggled against
many of these constraints.
His Bangalore-based company, Sloka Telecom, has
developed award-winning radio systems that are more flexible, smaller and less
expensive than equipment used by phone companies today. Mobile phone companies
and larger telecommunications equipment suppliers are buying and testing his
products, but he has not been able to interest Indian venture capitalists. For
the last five years he has run his firm on $1 million he raised from

“I can only afford to trial with one customer at a time and
that takes three months to materialize,”
said Mr. Karampuri, who has
considered moving the company to the United States to be closer to venture
capitalists who specialize in telecommunications. “You are always worried about
paying next month’s salary to people. Should you keep the money for this trial
or next month’s salary?”

Companies like Sloka Telecom are important, analysts say, because they
are more likely to create the next wave of jobs than large, established Indian
technology companies, many of which are experiencing slower growth. These
companies could also help offset some of the outsourcing jobs the country will
likely lose because of greater automation and competition from countries where
costs are even lower.

There are historical reasons that starting a business in India
is difficult. During British rule, imperial interests dictated economic
activity; after independence in 1947, central planning stifled entrepreneurship through burdensome licensing and direct state ownership of companies and banks.

Businesses found that currying favor with policy makers was
more important than innovating. And import restrictions made it hard to acquire machinery, parts or technology. Inventors came up with ingenious ways to overcome obstacles and scarcity
— a talent Indians used the Hindi word “jugaad” (pronounced jewgard) to describe. But the products that resulted from such improvisation were often inferior to those available outside India.

“We were in an economy where, forget innovation, expansion was
discouraged, creating wealth was frowned upon, there was no competition to speak
said Anand G. Mahindra, who heads the Mahindra & Mahindra
business group and has spoken about the need for more innovation.
Indian leaders began embracing the free market in the 1980s and stepped up the pace of
change in 1991 when the country faced a financial crisis. Those changes
increased economic growth and made possible the rise of technology companies
like Infosys and Wipro, which focused on providing services for American and
European corporations.

Yet, the government still exerts significant control,
especially in manufacturing, said Rishikesha T. Krishnan, a professor at the Indian Institute of Management in Bangalore. “To start a services company it really takes you just two or three days to get going,” said Mr. Krishnan, whose book, “From Jugaad to Systematic Innovation: The Challenge for India,” is to be
published next year. “The moment you are looking at manufacturing, there are hundreds of inspectors and regulations.”

Raising money is one of the biggest challenges entrepreneurs
face. Venture capital funds have flocked to India in recent years, but they are more likely to invest in established businesses than young firms.

In the United States, Israel and elsewhere, the
initial, or seed, capital for many start-ups comes from rich individuals known
as angel investors. But most rich Indians prefer to invest with family members or close friends because its considered safer and provides assurance that the lender will be able to borrow from relatives in the future.

“If you want to raise $3 to $4 million, it’s doable,” said Sumir
Chadha, who co-heads Sequoia Capital’s Indian operations. “But it’s difficult if
you want to raise $300,000 or $400,000,” a typical investment at the early
stages of a company’s life.

When Cellworks Group, which has most of its operations in Bangalore,
was looking to raise money last year, executives talked to venture capitalists
here and abroad. But the company raised all of the money it needed in the United
States, because most local investors did not have the expertise to evaluate the
biotech firm, said Taher Abbasi, the chief executive.

Cellworks has planted its corporate headquarters and a small staff near
San Jose so it can be close to investors and American universities for research
collaboration on cancer drugs.
“To really kick off entrepreneurship without
local money is very difficult,” Mr. Abbasi said.
Still, he said, India has
its advantages. Engineers and biologists are plentiful, though they need to be
trained more than their counterparts elsewhere. And operating costs are a lot
lower than in the San Francisco Bay Area, which was critical more than two years
ago when he and his partners started the company with their own money.

There may yet be hope for Indian innovation.

Some are looking to fill the venture fund vacuum. A group called Mumbai
Angels holds Saturday meetings every two months at which entrepreneurs pitch
ideas to affluent investors. Members of the group have invested in about 20
companies, said Prashant Choksey, a co-founder.
Separately, N. R. Narayana
Murthy, the chairman of Infosys, recently sold $38 million worth of shares in
his company to start a new venture capital fund. Mr. Raghavan, the former
Infosys executive, has invested about $100 million in start-ups like Connexios
Life Sciences, which is developing drugs to treat diabetes and other diseases.
Many Indian universities have also started entrepreneurship programs and

Vivek Wadhwa, a former technology entrepreneur who now
researches innovation, said the climate for start-ups in India was a lot better than it was a few years ago. It should continue to improve, he said, in part because companies like General Electric have hired tens of thousands of engineers in India to work in research and development
“Once they
have been working on these projects for a few years they will outgrow the
companies that they are working for,” he said. “They will hook up with these
entrepreneurs that failed” on previous start-up attempts and create new

Another change may augur well. Until early this decade, the Indian
market was too small and isolated to make it very lucrative for businesses to
develop products here, so most technology companies focused on selling services
to the West, said Girish S. Paranjpe, joint chief executive of Wipro’s
information technology business. “That will change dramatically because the
Indian market has become bigger,” he said.

In the last eight years, the size of the Indian economy has roughly
doubled along with the importance of foreign trade. There could still be
something to envy and fear. "

Monday, December 21, 2009

Share of Which Market?
Wed, 2009-07-29 17:27 — Sat Duggal

Very interesting article:

"In our quest for organic growth, we can often be our
own worst enemy. In the development of a win share strategy one of the most
obvious, critical but often neglected question is – what market are we trying to
get an additional share of? When marketers or executives are asked this question
their response is usually formed on the basis of their product or service
category i.e. we are in the credit card market, the market for inventory finance
or the market for car audio systems. Sometimes this is even taken to the next
level by adding entry-level, mid-range, premium and super-premium labels before
the product/service category.

This can be a real issue in the development of the strategy because it limits the ideas and solutions to the possibilities of today’s products and services. It is very difficult to craft unique innovations when you and your competitors are tweaking today’s products and services. It is very difficult to invent the next mini-van or iPod when you set off to win share in the mid-level family sedan or Walkman/Discman market.

Breakthrough innovations come from a fresh assumption-breaking definition of what market we belong in. The basis for the market definition should not be on what we sell but what the customer needs. The true basis of a market definition is our customers and how they meet their needs by considering various alternatives."

Monday, December 14, 2009

Can Amazon Be Wal-Mart of the Web?
NYT, 9/18/09

Amazon’s success is nothing less that astounding considering its brief history and the dot-com bubble it survived. Their focus is not just on sales but on critical processes to drive efficiency, accuracy and cost.


"Fifteen years after Jeffrey P. Bezos founded the company as an online bookstore, Amazon is set to cross a significant threshold. Sometime later this year, if current trends continue, worldwide sales of media products — the books, movies and music that Amazon started with — will be surpassed for the first time by sales of other merchandise on the site. (That transition already occurred this year in its North American business.)….
In other words, in an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos and power drills…..
“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer………
……. “It means we are becoming increasingly important in the lives of our customers, which has been our mission from the beginning,” said Jeff Wilke, Amazon’s senior vice president of North American retail. “We had the chance to earn the trust of the customer beyond media, and we took it.”


"AMAZON’S incursion into general retail has rivals scurrying to regroup and stop its advance.
In August, Target, which allowed Amazon to run its Web site for the last decade, announced it would end the affiliation when its contract was up in 2011, following other one-time Amazon partners like Borders and Toys “R” Us. This month, Wal-Mart said it would allow other retailers to sell their products on Walmart.com, mimicking Amazon’s third-party marketplace and trying to match its vast selection. Analysts believe Sears, which owns Kmart, is preparing to allow outside sellers on its sites as well.
But the Amazon effect may be most deeply felt by small independent stores, which cannot hope to compete with Amazon’s selection and prices and recall in fear how the company hastened the fate of both independent booksellers and prominent electronics chains like Circuit City"


"It has also lured an increasing number of small sellers to list their own products on Amazon.com, and takes around a 15 percent cut of each sale. Such third-party transactions now account for 30 percent of all the sales on the site. And Amazon continues to expand its network of more than 25 distribution centers around the world, where it constantly hones the art of getting products to customers as quickly as possible.
Next week, Amazon will take yet another step in this strategy, expanding its private label business with a line of Amazon-branded audio-video cables and blank media discs. Amazon already offers hundreds of private label kitchen products and outdoor furniture, and uses these direct relationship with manufacturers to further undercut prices from the competition."


"Inside Amazon’s vast shipping centers, the company’s growing capability as a general retailer is nearly invisible. What is clear is that the normal rules of retail don’t apply here.
Instead of storing similar items next to each other — televisions with other electronics, shampoo with other personal care items — randomness abounds…………Amazon says it stores dissimilar products next to each other on purpose, to minimize the possibility that employees select the wrong item. That seems unlikely: every product, shelving unit, forklift, roller cart and employee badge in these shipping centers has a bar code. Each physical move is orchestrated by software that calculates the most efficient path from shelf to the shipping area, telling employees on their wireless bar code readers which aisle and palette to go to next."


"Amazon also benefits greatly from its advanced inventory management methods and ability to negotiate beneficial payment terms with vendors. The company sells such a large volume of merchandise, and can predict customer demand so accurately, that it generally sells products within 65 days, before it has to pay suppliers for them.
That arrangement, which analysts call “negative working capital,” is unusual outside of grocery stores and allows Amazon to avoid the huge capital charges associated with buying and storing such a broad line of inventory. It also boosts the company’s cash flow, which it has used to pay down its debt to $109
million at the end of June from a hefty $2 billion in 2000, and to add more product lines to its Web site. "

Monday, December 07, 2009

At the Base of the Pyramid
When selling to poor consumers, companies need to begin by doing something basic: They need to create the market

WSJ, 10/26/09 http://online.wsj.com/article/SB10001424052970203946904574301802684947732.html

This article from the Wall Street Journal highlights not only the challenge of creating business opportunities at the bottom of the human pyramid, but also interesting insights of consumerism in developed markets:

"Around the world, four billion people live in poverty. And Western companies are struggling to turn them into customers.

For the past decade, business visionaries have argued that these people, dubbed the Base of the Pyramid, make up an enormous, untapped market. Some of the world's biggest, savviest corporations have aimed to address their basic needs—by selling them everything from clean water to electricity.

But, time and again, the initiatives have quietly fizzled out. Why?

Because these companies were looking at it all wrong.

Put most simply: The Base of the Pyramid is not actually a market. True, those billions of low-income people have a lot in common. But they don't have two of the vital characteristics you need to have a consumer market. They haven't been conditioned to think that the products being offered are something one would even buy. And they haven't adapted their behaviors and budgets to fit the products into their lives. A consumer market is nothing less than a lifestyle built around a product.

Think of an example close to home. In the 1970s, bottled water was a foreign idea to most Americans—it wasn't part of American consumers' lifestyle. It took decades for large numbers of consumers to accept the notion of buying something you could get free out of a faucet—and turn bottled water into a big business. For many poor consumers, paying for clean water or sanitation products seems just as outlandish.
The answer? Companies must create markets—new lifestyles—among poor consumers. They must make the idea of paying money for the products seem natural, and they must induce consumers to fit those goods into their long-held routines.

That means working closely with local communities in developing products and businesses, to give consumers a stake in adopting the goods. What's more, companies must take a wide-ranging approach in their marketing, to give buyers as many reasons as possible to give the products a try."

Thursday, December 03, 2009

Finding the Right Job For Your Product
By Clayton M. Christensen, Scott D. Anthony, Gerald Berstell and Denise Nitterhouse
April 1, 2007

A key underpinning of the MDG process is the concept of innovating across the full business design:

• Customer Segmentation: Innovate on targeting and understand your customers differently than competition.
• Value Proposition: Innovate on developing a compelling value proposition for the target customer
• Value Capture: Innovate on how we make money.

Clayton Christensen’s article highlights the critical importance of starting the innovation process with segmentation:

"The market segmentation scheme that a company chooses to adopt is a decision of vast consequence. It determines what that company decides to produce, how it will take those products to market, who it believes its competitors to be and how large it believes its market opportunities to be. Yet many managers give little thought to whether their segmentation of the market is leading their marketing efforts in the right direction. Most companies segment along lines defined by the characteristics of their products (category or price) or customers (age, gender, marital status and income level). Some business-to-business companies slice their markets by industry; others by size of business. The problem with such segmentation schemes is that they are static. Customers’ buying behaviors change far more often than their demographics, psychographics or attitudes. Demographic data cannot explain why a man takes a date to a movie on one night but orders in pizza to watch a DVD from Netflix Inc. the next.

Product and customer characteristics are poor indicators of customer behavior, because from the customer’s perspective that is not how markets are structured. Customers’ purchase decisions don’t necessarily conform to those of the “average” customer in their demographic; nor do they confine the search for solutions within a product category. Rather, customers just find themselves needing to get things done. When customers find that they need to get a job done, they “hire” products or services to do the job. This means that marketers need to understand the jobs that arise in customers’ lives for which their products might be hired. Most of the “home runs” of marketing history were hit by marketers who saw the world this way. The “strike outs” of marketing history, in contrast, generally have been the result of focusing on developing products with better features and functions or of attempting to decipher what the average customer in a demographic wants."

Monday, November 23, 2009

This is worthwhile insight into creating the capability to develop demand:

"In our experience, here are the key components of a demand generation capability:

Process – Managers in demand generation activities do not respond very well to the step-by-step rigid process definitions that are more appropriate to other parts of the organization. They respond best to the combination of a framework organized by decision gates, managed by metrics and learnt through success models that clearly illustrate stories of what worked and did not.
Skills – The process is only as good as the people driving it. In driving demand generation decisions there are four key components that are important – consumer (customer) focus, channel focus, data foundation and creativity. Good demand generation case studies typically demonstrate superior application in all of these components.
Knowledge and experience – While experience is a function of time, it can be fast tracked by some form of shared learning on case studies. Some companies also use a carefully managed mentorship program that better leverages the knowledge and experience of its people.
Supporting Infrastructure – The role of the supporting infrastructure is to make the demand generation capability efficient, scalable and current. This can be achieved through technology, centers of excellence and other such enablers"

Tuesday, November 17, 2009

The Most Powerful Paths to Profits
Twelve strategies to shape a company’s destiny.
by Mia de Kuijper

This is a great summary of the levers one can pull to create sustainable competitive separation. I strongly recommend going to the site for the excellent examples they offer.

"Twelve power nodes will be the most important sources of profit in the
decades to come. Ten of the older nodes are already well-established sources of
Brands. Think of the leverage wielded by McDonald’s, Coke, and
Intel over their suppliers and partners simply because customers are attached to
their names.
Secret, special, or proprietary ingredients. In 1986, when a
private equity firm acquired the antifreeze maker Prestone from Union Carbide, a
deal was struck allowing Prestone to purchase ethylene glycol from its previous
owner at a confidential low price. Shortly thereafter, the price of this
chemical skyrocketed, owing to refinery accidents and increases in feedstock
prices. Prestone’s reliable inexpensive supply of ethylene glycol ensured that
it retained its profitable position while competitors suffered.
Regulatory protection. In certain industries, regulators can grant privileges to businesses like hospitals, banks, and nuclear plants; rights to use scarce natural
resources like broadcast frequencies or offshore drilling sites;……..
Essentially, the regulations represent a barrier to entry and limit the number
of competitors a company can have; as a result, the strongest companies in
heavily regulated sectors generally enjoy sustained profitability.
Focused financial resources. Some companies have innovative means of access to capital that other enterprises cannot duplicate, and that access can be deployed to
exert control over the business environment.
A customer base with switching costs. Customers don’t like to pay to switch loyalties. T
A proprietary process or modus operandi. Some companies have unique methods and procedures that guide their people, equipment, or systems.
Distribution gateways. The Industrial and Commercial Bank of China (ICBC) relies on its distributed network of 18,000 branches and 150 million customers for cheap deposits and growing revenues
The dominant position in a layer. A layer is a horizontal slice within a
vertical value chain.
Increasing mutual utility. The larger the existing base of users, the more attractive the product is to potential new customers.
Filters and brokers. Companies and individuals that could be termed
filters or brokers, a group that includes wine experts, art curators, and real
estate and jewelry appraisers, have influence in situations in which objective
information is hard to obtain or people do not have the time or training to
choose adequately on their own.

A Digital Environment
The 10 power nodes above have been around for a while. But the remaining two power nodes are strikingly novel.
Aikido assets. This power node is named after the
Japanese martial art that exploits the energy of an opposing force. In the
current information environment, it is no longer useful to “push” advertising
and marketing messages to consumers. Most customers reach out for information
they need on their own
Hubs. One of the most effective power nodes
imaginable in a transparent economy is the ability to become the beneficiary of
self-reinforcing popularity. Hubs are people or products that attract viewers,
assignments, clients, buyers, or users in part because others are drawn to them
as well. "

Thursday, November 05, 2009

He Prizes Questions More Than Answers
NYT, October 25, 2009

IDEO is a fantastic design company that we feature in our Driving Organic Growth class an as example of the importance of process. They are experts in the process of innovation. The following is a revealing interview with the CEO Tim Brown:

"Q. What were the most important leadership lessons you learned, and how did you learn them?
A. That is something that I’ve continued to really believe — that you don’t know where the best ideas are going to come from in the organization. So you’d better do a good job of promoting them when they come and spotting them when they emerge, and not let people’s positions dictate how influential their ideas are.

Q. And how does that manifest itself in the way that you run IDEO?
A. I’ve gone to great lengths to try to encourage what I call an emergent culture at IDEO, where people understand that it’s essentially their responsibility to have good ideas. Not about the work they do every day — we all have to do that — but about new ideas for the company. What are we going to do next? What fields are we going to work in? What are our new big things?

Q. But answers are often rewarded more than questions, right?
A. That was one of the things that used to make me feel very, very insecure as a business leader — thinking: “Am I supposed to have all the answers? Because I know I don’t.” Then I finally came to realize, well, nobody else has all the answers, either…… But I’m personally perfectly comfortable admitting that I don’t know the answers and that I’m more interested in the questions anyway

Q. What’s changed about your leadership style in terms of interacting with people?
A. For a long time, my mode of operation was to get very excited about other people’s ideas and work really hard to kind of build them, which meant I often took ownership of them….. And I think I’ve learned over time, slowly, that in fact it’s much more effective to let them keep ownership of the idea.

Q. What else are you looking for when you hire?
A. There’s this idea that McKinsey first articulated many years ago of the T-shaped person, which is somebody who’s got some deep craft — a great writer or a great designer or a great architect, engineer or whatever they might be — and that’s the vertical stroke of their T. But then the horizontal is that they’ve got clear empathy and interest in engaging with other disciplines and doing other pieces of the process or playing other roles.

Q. What’s your best interview question for job candidates?
A. One question I always find helpful is to ask who they’ve done things with. And if they can very quickly give you lots of examples of what other people did, then you’ve got some hint about how collaborative they are.
If, however, the answer is, “I did this and I did that and I was responsible for that,” and you get no sense of who they worked with and how they worked with them, then I worry. Because then I see somebody who probably isn’t very collaborative, probably isn’t very good at promoting the ideas of others and probably isn’t going to bring talent out very effectively."

Friday, October 23, 2009

No Apologies From the Boss of a No-Frills Airline

August 1, 2009 NYT

A critical component of creating competitive separation is deciding what you ARE and what you are NOT while meeting needs or creating outcomes for a large enough segment of customers. Ryanair is an example that some may think is counterintuitive. They do NOT deliver service but low fares, a good on-time record, few cancellations and few lost bags. The key is to be good enough to be world class in delivering your Value Promise to your target customers to keep yourself separate from you competitors in the eyes of your customers:

RYANAIR flies more than 850 routes across Europe, often to obscure airports far away from big cities — “from nowhere to nowhere,” in the scoffing words of Sir Stelios Haji-Ioannou, who runs the competing airline EasyJet. Ryanair’s post-tax profit fell by 78 percent in the year that ended in March, but still amounted to $149 million. While most carriers are hemorrhaging passengers, Ryanair expects its passenger numbers to increase, to 68 million this year from 57 million in 2008. ……..
The mystery is why so many people are willing to put up with an airline that, in the words of The Economist, “has become a byword for appalling customer service, misleading advertising claims and jeering rudeness towards anyone or anything that gets in its way……”
………“Nobody helps you — it’s as simple as that,” said Malcolm Ginsberg, editor in chief of the travel newsletter aerbt.co.uk, describing what happens to Ryanair passengers who need assistance at the airport.

That is not the point, Mr. O’Leary said in a recent interview. “Our customer service is unlike every other airline, which has this image of, ‘We want to fall down at your feet and you can walk all over us and the customer is always right,’ and all that nonsense.”

By contrast, Mr. O’Leary continued, Ryanair promises four things: low fares, a good on-time record, few cancellations and few lost bags.(critical driver of their competitive separation)

“But if you want anything more — go away! Will we put you in a hotel room if your flight was canceled?” Mr. O’Leary asked rhetorically. “No! Go away.”

Tuesday, October 13, 2009

Inside the Kraft Foods Transformation
Eleven of the top leaders from the largest food and beverage company in the U.S. talk about their three-year turnaround and their campaign to reorganize for growth.

Reprint No. 09307

Published: August 27, 2009
/ Autumn 2009 / Issue 56

I HIGHLY recommend reading this article in full. The intro is:

"When a company’s corporate core gets too far from its businesses, from the marketplace, and from its consumers, then a new organizational model may be needed. That was true of Kraft Foods when I (Irene Rosenfeld) returned as chief executive in June 2006. I had just spent three years running the Frito-Lay division of PepsiCo, where decision making was highly decentralized. That experience had reminded me how powerful it is when people come to work every day aligned with and focused only on the business, rather than on the internal organizational demands"

This is the decentralized organization model they evolved to:

Monday, October 05, 2009

Cisco Buys Norwegian Firm for $3 Billion
NYT, 10/2/09

Successful innovation across full business designs –segmenting target customers and determining the desired outcomes for them; developing a value proposition for those targets; and defining a sustainable value capture model—should require an expansion of one’s capabilities (in the broadest sense from physical and HR assets, to market access, to intellectual property etc.) if the organization is pushed hard enough. My belief is that your current capability platform must be a critical component of achieving the desired growth business design (if not, why do it) but it should not be limiting. How to achieve those capabilities is always an issue. There are generally three options: build them yourself; buy them; or form partnerships/alliances (a key component of our class on Implementing Organic Growth Strategies -- http://execed.kellogg.northwestern.edu/programs/LEAD20/index.htm)

This article on Cisco’s recent capability plan to build their business for video conferencing exemplifies that the answer is situational.

M&A to Fill Capability voids:

"Cisco sells companies expensive, room-size videoconferencing systems known as TelePresence systems. Tandberg has similar technology but also sells smaller, cheaper conferencing units. In addition, Tandberg has specialized software for managing videoconferencing systems and for creating connections between systems that rely on different underlying technology.
“It really enables us to build out our portfolio,” said Ned Hooper, a senior vice president at Cisco.
Cisco’s corporate videoconferencing products require the company to outfit a customer’s conference room with several large display screens, networking equipment and even special tables, chairs and wall paint. By contrast, Tandberg has a range of gear, including high-definition video systems that can sit on desks or be used with personal computers."

M&A to drive growth for existing capabilities and to go into new markets:

"Cisco has bought close to 40 companies in the last five years…….the acquisitions have suited Cisco’s mission of backing products that generate more Internet traffic, which in turn drives demand for the networking hardware that has long been the core of its business.
The deals have also thrust Cisco into new markets like consumer electronics, business collaboration software and computer servers where the company now finds itself in direct competition with its traditional business partners, like Hewlett-Packard, Microsoft and I.B.M."

They will form alliances when it is the preferred approach particularly when the challenge of integrating an acquired company is very difficult, in this case a true service business vs. what Cisco normally does:

"Still, companies like Cisco, Dell and EMC must find ways to match the heft of Hewlett-Packard and I.B.M., which have huge technology services businesses to complement their hardware and software pursuits.
Rather than acquiring a large services company, Cisco will continue to partner with independent players like Accenture and Wipro, Mr. Chambers said.
“I think that is a more scalable, faster-speed and less confrontational model,” he said."

Wednesday, September 30, 2009

Trends to Watch

I thought these were some pretty cool trends that are clearly B2C in nature but I believe can be extrapolated to B2B situations as well:

"Reviewing is the New Advertising
There are many more research studies, findings, dissertations, and so on that confirms the same fact: reviewing is the new advertising. This shouldn’t come as a surprise: just as with other trends, what’s unfolding now is a ‘forever need’ among consumers, one that's now being satisfied in a superior and previously unattainable fashion. In this case, the need is for trusted advice and recommendations—for feeling in control, for knowing the facts, for avoiding mistakes and disappointments—in order to make that perfect purchase. Which has become even more pressing as choice-overload continues: never before was there so much to choose from, in mature consumer societies, and thus such a need for reviews.

INNOVATION JUBILATION (May 2009) “ There will never be a shortage of smart new ventures, brands, goods and services that deliver on consumers’ wants and needs. And if those wants and needs currently revolve around practicality, efficiency and responsibility, and less about traditional luxury, splurging and upgrading, then that’s what brands should deliver on……. As focused as we are on emerging consumer trends, we never tire of pointing out that trends are only good for one thing: inspiring you to innovate, to come up with new goods, services and experiences for (or even better, with) your customers….
• Innovation is not necessarily about people in white coats puttering about in R&D labs. In an experience economy (which we’re still in, recession or not), marketing innovation is equally important, and often trumps technical innovation.
• Furthermore, as consumers’ wants are sometimes frilly, new products and services can be, too. Really, innovation doesn’t have to be so earnest all the time! Have fun with it, too!
• Thirdly, doing or starting something new doesn't have to cost the world. Many of the innovations featured in this briefing thrive on nimbleness and creativity, not huge budgets.

SELLSUMERS: Whether it’s selling their insights to corporations, hawking their creative output to fellow consumers, or renting out unused assets, consumers will increasingly become SELLSUMERS, too. Made possible by the online revolution’s great democratization of demand and supply, and further fueled by a global recession that leaves consumers strapped for cash, the
SELLSUMERS phenomenon is yet another manifestation of the mega-trend that is 'consumer participation'.

ECO-BOUNTY refers to the numerous opportunities, both short and long term, for brands that participate in the epic quest for a sustainable society. Some of these opportunities exist despite the current recession, others are fueled by it, not in the least because of new rules and regulations. Downturn-obsessed brands who lose their eco-focus will find themselves left out in the cold when the global economy starts recovering."

NICHETRIBUTES, which is about the power of making products and services relevant by incorporating ‘attributes’ and features that cater to distinct (if not niche) consumer lifestyles and situations…. NICHETRIBUTES are attributes / features / additions to existing products, making them more practical for specific user groups, while at the same time signaling to those users that the brand 'gets it’, that it cares, and in some cases even pays tribute to their lifestyle. An interetsing example is sell winter gloves for those who use touch screen devices: Dots Gloves are knit gloves with metal dots on the fingertips that won’t scratch iPhones, iPods or other touch-screen phones or devices, while Etre Touchy gloves keep hands warm and dry while operating electronic gadgets by baring only the wearer's index finger and thumb. And how about the first hands-free cell phone glove for winter sports, the GX-1 by Swany?"

Saturday, September 26, 2009

Managing Through Uncertainty. Mastering New Realities: ADVERTISEMENT
November 9 – 10, 2009
James L. Allen Center
Kellogg School of Management
Evanston, IL

I have been associated with the Kellogg Innovation Network (KIN) for the past 5 years and this is one of the best sessions to date. The KIN is a group of companies that meet 3 to 5 times a year to discuss timely topics facilitated by a Kellogg team. The topic -- Managing Through Uncertainty. Mastering New Realities.—is one that I feel is essential in our new marketplace. I highly recommend you attend if you can. Contact Rob Wolcott at r-wolcott@kellogg.northwestern.edu if interested. Note, there is limited space so inquire soon if interested.

Here is a summary of the session (Program fees are $1850 per participant)

"The world has changed dramatically in the past year. What is different? What remains the same? Managing for the next quarter or year isn’t enough anymore, yet the rate of change has accelerated globally. How can we manage through this uncertainty? Leaders like Jeff Scott, MD at LexisNexis and former CTO of Thomson Financial; Thomas P.M. Barnett, New York Times bestselling author and globally-recognized geopolitical strategist; Dr. Jack Groppel, founder of the Human Performance Institute; Dr. George Basile, Executive Director of the Decision Theater at ASU; and Kellogg Professor Jim Shein, a nationally-recognized expert in corporate turnaround management, will all be part of a powerful and, shall I say, ‘innovative’ program.

Join us for an active dialogue to become some of the best prepared executives in the world. Our Dialogues are limited to an intimate group of innovation leaders from global companies, some of our KIN Senior Fellows and a few other surprise guests. We won’t just listen to keynoters and panelists, we’ll engage with them in collaborative sessions.

Program Content

Jeffrey Scott, MD at Lexis Nexis and former CTO of Thomson Financial, led Thomson Financial through a radical transformation over seven years, crossing the dotcom crash and 9/11 in the process. Thomson emerged alongside Bloomberg as the world’s top players in their industry. He’s leading a similar process at Lexis Nexis. We have much to learn from his experience navigating through adversity to achieve a long-term vision.

Dr. Thomas P.M. Barnett, Senior Managing Director of Enterra Solutions, LLC, and New York Times bestselling author of The Pentagon’s New Map and Great Powers: America and the World after Bush, is one of the most sought after advisors to government and military leaders worldwide. He has advised the US Department of Defense at the highest levels under both Republican and Democratic administrations. We will hear his vision for the most critical geopolitical issues in the world over the next few years… and challenge ourselves to understand what these developments mean for leading our businesses.

Prior to the past year, few executives have faced the kind of adversity we’ve seen in global markets, though some executives have managed through radical corporate turnarounds. Kellogg School Professor James Shein, globally-recognized expert in corporate turnarounds and leader of the Kellogg School’s annual turnaround conference, will lead a panel of executives who have taken companies on the brink and brought them back to growth and profitability.

Dr. George Basile, Executive Director of the Decision Theater, Arizona State University, leads one of the most innovative programs dedicated to making decisions under conditions of significant uncertainty and complexity. Dr. Basile will explore business focused sustainability challenges as an issue area to share his program’s unique processes. We’ll see how other companies and government organizations have addressed critical challenges in unique and powerful ways.

A pioneer in maximizing human performance through management of health and
stamina, Dr. Jack Groppel will share with us techniques he employs with organizations from P&G and PepsiCo to the Pentagon and even the Kellogg School of Management. Johnson & Johnson was so impressed, they bought Groppel’s Human Performance Institute in December, 2008, as a cornerstone of the company’s Wellness & Prevention platform.

Wednesday, September 23, 2009

The Corporate Lab as Ringmaster
August 16, 2009

The concept of Open Innovation (see earlier postings at our blog site under the category IDEAS) is truly the wave of the future as this article implies. Importantly, this concept although pioneered by large companies can and will work equally well for smaller enterprises with more limited R&D budgets. In fact, I believe it is the only way for smaller companies to compete with the big guys if they do it right.

"THE Internet has changed many things, of course, but one of its more far-reaching effects has been to transform the economics of innovation.
The nation’s big corporate research and development laboratories — at I.B.M., General Electric, Hewlett-Packard and a handful of other companies — have their roots and rationale in the industrial era, when communication was costly, information traveled slowly and social networks were fostered at conferences and lunchrooms instead of over the Web.

Crowdsourcing and other new, more open models of innovation are really byproducts of the low-cost communication and new networks of collaboration made possible by the Internet.

So, in the Internet era, what is the continuing role and comparative advantage of the corporate R.& D. lab?

Its role will be smaller and its advantage diminished, suggests Michael Schrage, a research fellow at the Center for Digital Business at the Sloan School of Management at M.I.T. The idea-production process, according to Mr. Schrage, will continue to shift away from the centralized model epitomized by large corporate labs, going from “proprietary innovation to populist innovation.”
Much of traditional corporate R.& D. spending, he said, has been subsidized by profits that are increasingly under Internet-era pressures. “The economic case for a lot of in-house R.& D. no longer makes sense,” Mr. Schrage said.
The best bet for corporate R.& D. labs, he said, is to adopt a “federated” model that leverages all the innovative work by outsiders in universities, start-ups, business partners and government labs. The corporate lab’s role, then, is to be more of a coordinator and integrator of innovation, from both outside and inside the company walls (
I believe this model is ideal for the smaller company with more limited R&D budgets)

Though hardly alone, Hewlett-Packard has aggressively adopted that approach in the last two years, after Prith Banerjee became the senior vice president for research. Under Mr. Banerjee, former dean of engineering at the University of Illinois at Chicago, H.P. Labs has not only narrowed its focus, placing larger bets on fewer projects, but has also systematically sought outside ideas.
H.P. now runs a yearly online contest, soliciting grant proposals from universities worldwide. The company lists eight fields in which it is seeking advanced research, and scientists suggest research projects in those fields.

The H.P. grants are typically about $75,000 a year, and many of the collaborative projects are intended to last three years. In June, the company announced the 61 winners from 46 universities and 12 countries, including 31 projects receiving a second year of funding. “We are tapping the collective intelligence, selectively, of leading academics around the world,” Mr. Banerjee said……
…..Opening up is a good approach to some problems. But tight-knit teams inside corporate labs, experts say, can outshine the open model when working on multidisciplinary challenges in projects soon heading to market.
“You can’t leave discovery completely to others and to chance,”

A viable approach is to go outside to develop new concepts and then after using techniques such as Real Options management – see earlier postings under the category head PROCESS BEING AMBIDEXTROUS for descriptions) --test and develop/reject them internally.

Wednesday, September 16, 2009

Welcoming the New, Improving the Old
NYT, Sept 6, 2009

An important theme we developed over our blog’s history is the importance for companies to be “ambidextrous”—using multiple processes to achieve business success (see our blog site -- http://marketdrivengrowth.blogspot.com/
- -for a grouping of earlier postings on this subject under the PROCESS-BEING AMBIDEXTROUS category). The focus has been the proper deployment of processes like 6 Sigma and innovative process like the one discussed below. It is my experience that companies tend to latch on to one process (usually 6 Sigma) with a religious fervor trying to adapt it to all situations.

“For decades, companies from Cisco Systems to Staples to Bank of America have worked to embed the basic techniques of Six Sigma, the business approach that relies on measurement and analysis to make operations as efficient as possible.
More recently, in the last 5 to 10 years, they have been told they must master a new set of skills known as “design thinking.” Aiming to help companies innovate, design thinking starts with an intense focus on understanding real problems customers face in their day-to-day lives — often using techniques
derived from ethnographers
(study customers vs. just asking what they want)— and then entertains a range of possible solutions.

To many, the two skill sets don’t fit together well, and Chuck Jones, vice president for global consumer design at Whirlpool, explains why that may be so. Design thinkers, he says, are like quantum physicists, able to consider a world in which anything — like traveling at the speed of light — is theoretically possible. But a majority of people, including the Six Sigma advocates in most corporations, think more like Newtonian physicists — focused on measurement along three well-defined dimensions.
(This is one of the best comparisons I have seen!!)……..

…..To survive, many businesses will have to figure out how to incorporate both approaches. Design thinking offers tools for exploring new markets and opportunities; Six Sigma skills can be applied to improve existing products. Companies that adhere strictly to one or the other risk failure. “The practices that make for success at one time can trap firms and contribute to their downfall at a later time,” says Bob Cole…….

……..the Six Sigma process starts with an assumption about what is good…..Design thinking, meanwhile, inquires as to what is good…..

The different world views, however, can be brought together.
Progressive Insurance has also turned design and Six Sigma techniques into reasonably comfortable bedfellows. In the early 1990s, it started emphasizing showing up at an accident scene and handling situations in real time, according to a 2004 article by Michael Hammer in The Harvard Business Review. That move reflected a designer’s way of thinking about customer needs, but the company was able to execute the idea through its ability to measure, analyze and improve its processes.

Both worlds — the quantum one where designers push boundaries to surprise and delight, and the Newtonian one where workers meet deadlines and margins — are meaningful. The most successful companies will learn to build bridges between them and leverage them both. "

Wednesday, September 09, 2009

Breakthrough Thinking from Inside the Box
HBR, December 2007 Reprint: R0712E

Whenever we teach or consult on growth, one key aspect is expanding the addressable marketspace of your business to afford room to grow. The classic example is Coke defining their addressable marketspace as all consumed liquids vs. just carbonated beverages. One requirement we place on our clients is that you must stretch yourself sufficiently out of your current box such that you will need new capabilities to compete in the expanded space. The following is the visual we use to depict the logic of capturing a greater share of the consumer dollar,wallet (The Profit Zone, Slywotzky) in the space you want to participate in:

We try to encourage businesses to go from the “brown box” to the “green” one.

However, a key larning fo me afte reding his article is that there maybe sufficient growth potential in the "brown box". There was a great article in HBR on that issue, entitled “Breakthrough Thinking from Inside the Box”. The type of questions asked 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?
Explore unexpected successes
Who uses our product in ways we never expected or intended?
Who uses our product in surprisingly large quantities?

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 to radically improving the economics of another business?

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?
For 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?

Revisit the premises underlying our products and processes
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?"

I strongly suggest ordering the reprint for some great insights!

Monday, August 31, 2009

How to Shut Down a Project Gracefully
by Rita Gunther McGrath


This is a great article pasted on to me by Mark Podwysocki.

We often discuss the need to make the hard portfolio decisions to ensure the organization has the budgetary headroom to fund the critical growth initiatives. Rita in her lectures talks about the need to kill the “the walking dead”, those projects that eat up resources with little chance of success. This is part of the overall process to “manage the cost of failure, not the rate of failure “which is essential for a sustainable innovation process. The article also discusses what they call a barebones NPV that assesses such factors as launch time, ramp-up time, competitive response, total investment, and projected annual costs and sales. That is covered in complete detail in their book Discovery Driven Planning (http://www.discoverydrivengrowth.com/)

"Project escalation often derives from the best of intentions. Researchers have identified three major sources of entrapment in a failed initiative: psychological entrapment, in which team members feel personally committed to staying the course; rationalized entrapment, in which team members feel that success is just around the corner; and social entrapment, in which team members are reluctant to withdraw from a project because of commitments they have made to one another and to outside parties. A simple way to determine if the team is trapped is to ask each person in the group to anonymously agree or disagree with a series of statements. These statements can explain why smart, successful people might consciously or unconsciously have continued committing their talent and resources to projects that reasonably should have been shut down. They could include:

• I feel we will lose the respect of others if this project is shut down.
• Stopping this project would have a negative effect on my career or that of other team members.
• We made a public commitment to this project, and it would look bad to break it.
• We’ve made commitments to outside parties (investors, suppliers, distributors, customers) and inside parties (directors, management, other divisions, employees), and we cannot or should not break them.
• We have had some good results and are at a turning point; it would be premature to stop now.
• At this point, it would cost us more to stop than it would to finish.
• People who want us to fail (rivals, competitors) will gloat.

If most of the group’s members agree with about a third or more of the statements, the team is at risk of escalated commitment. In that case, we suggest you have a frank discussion with team members about the various pressures that have little to do with the commercial promise of their project, and that may be clouding their judgment. You’ll have to tell them that some tough calls will be made about the project, but they will be made as thoughtfully and gracefully as possible.

To discontinue a project, develop a disengagement plan. It’s just as important as the business plan you created to set up your growth initiative. But perhaps because people are so averse to failure, the disengagement plan is often neglected, resulting in lost value and much more misery than necessary. The disengagement plan should be short (five pages at most) but well crafted, a document developed by the venture team in conjunction with senior managers. It should formally address two critical issues.

Monday, August 24, 2009

Changing Technologies and Business Models

The following article from the New York Times demonstrates a fascinating illustration of the impact of technology and then changing business models on an industry that most can relate to: Swan Songs?, by C.W. Blow, NYT, August 1, 2009. The visual says it all.

From 1978 to 1999, the prevailing business model was acquiring music albums from thriving retail outlets. What changed each decade was the media in which the albums were sold (the chart is in constant dollars so it is hard to compare growth rates of the overall industry during this period). In 1978, the vehicles were LP’s and to a lesser extent 8-track tapes; in 1988, cassette tapes dominated while in 1999, CD’s had nearly 100% of the volume. The principle challenge of the retail industry was adjusting to selling different technologies but the “Unit of Business” and business model remained the same – selling albums.

The internet changed all of that but maybe not in a way that you think that has resulted in an incredible decline in sales since 1999:
…..since music sales peaked in 1999, the value of those sales, after adjusting for inflation, has dropped by more than half.

Note, the download for a fee of music has not made up for the decline in CD sales as the changing technologies did in earlier decades—the overall revenue of the industry is declining rapidly:

“First, piracy punched a big hole in it. Now music streaming — music available on demand over the Internet, free and legal — is poised to seal the deal (Free music is available on the internet via web sites containing free “radio stations” with no or limited advertisements that categorize music in a host of categories. All you need is access to the net. The one I use that is Blackbery friendly is http://www.slacker.com/)……
…..The problem is that if people can get the music they want for free, why would they ever buy it, or even steal it? They won’t. According to a March study by the NPD Group, a market research group for the entertainment industry, 13- to 17-year-olds “acquired 19 percent less music in 2008 than they did in 2007.” CD sales among these teenagers were down 26 percent and digital purchases were down 13 percent….
….Even if they choose to buy the music, the industry has handicapped its ability to capitalize on that purchase by allowing all songs to be bought individually, apart from their albums. This once seemed like a blessing. Now it looks more like a curse.”

Two fundamental things changed:
• The business model is changing from acquisition to one of access (music streaming); and,
• The Unit of Business has changed from the album to individual songs:

“….of the 13 million songs for sale online last year, 10 million never got a single buyer and 80 percent of all revenue came from about 52,000 songs. That’s less than one percent of the songs.”
The implications to the industry are significant:
“… In previous forms, you had to take the bad with the good. You may have only wanted two or three songs, but you had to buy the whole 8-track, cassette or CD to get them. So in a sense, these bad songs help finance the good ones. The resulting revenue provided a cushion for the artists and record companies to take chances and make mistakes. Single song downloads helped to kill that.”

”So it was no surprise that The Financial Times reported on Monday that Apple is working with the four largest labels to seduce people into buying more digital albums. It’s too little too late”

I do not have the answers to cure the industry –if any of you do, you could make a lot of money –but this example highlights the greater difficulty of adjusting to new business models vs. just changes to technology. In this case, the route to market, profit models and Units of Business changed dramatically. It also highlights how changes instituted to adjust to a changing environment –in this case selling individual songs vs. albums over the internet – can come back to bite you.

Monday, August 17, 2009

In the quest for uniqueness
Mon, 2009-07-27 14:02 — Sat Duggal

I have discussed the concept of competitive separation – creating separation from your competition in the eyes of your customer. First, you must understand who your target customers are and then define the key attributes/features of their buying decision. Next is to build your total offering in that context. This is the only way to separate yourself from thre pack:

"I was recently in the market for a digital camera. While this is my 3rd camera in the last 5 years (don’t ask!), what surprised me the most in this latest shopping cycle is the sharp increase in bewildering choices available to buyers. From the arcane language of focal this and aperture that and zooms and shutter speeds, I was soon swimming in unknown seas. What bothered me the most was how much more difficult the choice set had become and how difficult it was to differentiate one choice from another.

Differentiation (competitive separation) is a key driver and a leading indicator of brand strength. Virtually every model and every management tome evangelizes the cause for meaningful distinction. But in today’s world, how can one achieve differentiation (competitive separation)? Most features are easily copied, everyone is getting more design-conscious and manufacturing strategies are replicable in most industries. Not only that, most manufacturer’s, in their quest for differentiation, have over-engineered their products to only watch low-priced, “good-enough” competitors run away with market share. How can one build meaningful differentiation that can serve the brand over a period of time?

Most manufacturers, like most of our camera makers, focus on the bottom part of the hierarchy of needs.

While it is important for a camera to deliver on the latest attributes (megapixels, zoom options), the land of differentiation is often found at the higher rungs of the hierarchy of needs. It is in functional benefits (picture quality, easy to use) or even better in emotional benefits (sense of achievement, trust, security) that brands can find lasting uniqueness. This does not mean that product attributes are not important. They are absolutely critical. But the right set of attributes, consistently delivered over a period of time help a brand build equity in a benefit area and therefore help it stand for something unique in the marketplace."

We use a similar model in our work of defining a Value Proposition for the target customer. A critical component of this model is that each level in the pyramid must meet the basic needs of the customer before going higher. So, the product attributes must be there before you can focus on the Functional Benefits and they must be acceptable before you have a chance of creating the emotional link, thetrue driver your brand. Of course you can create competitive separation all along the pyramid but the usual trap is you stop too soon.

Monday, August 10, 2009

Leading Out of the Downturn
by Rob Norton


I found this to be an intriguing article on the challenges leaders face when confronted with the current business environment. I strongly urge reading this interview with Steve Zaffron, the co-author of "The Three Laws of Performance: Rewriting the Future of Your Organization and Your Life" …..http://www.strategy-business.com/li/leadingideas/li00134?pg=all

"The most important task for corporate leaders, says consultant and author Steve Zaffron, is to reorient the minds of their employees toward a positive vision of the future. The last 18 months have been the most trying in decades for corporate leaders. The conditions that normally make running a company, a business unit, or a team rewarding — market expansion, revenue growth, rising pay, and incentives — have been absent for most, replaced by the unrelenting tasks of survival, retrenchment, and cost cutting……

…….The main task, they argue, is to recognize that people normally have an unconscious, gut-level idea of where they — and their company — are at, and where they’re likely to go. Zaffron and Logan call this “the default future” and show how it is deeply rooted in people’s assumptions, hopes, fears, and past experiences. The first task of leadership, they argue, is to identify the default future, discuss it, and analyze it, and then go about reimagining — and, in effect, rewriting — the future……

……EXAMPLE QUESTION: The three laws of performance in your book deal with understanding — and changing — the way people think about that default future. How does following your advice change the way a leader would react in the situation we’re discussing?
ZAFFRON: Instead of this fear — “I’m cutting my budget and what’s going to happen” and so forth — I could look at the same situation and see that this is a great opportunity to create a new business model, or to cut away things that haven’t worked but that keep going on, and to actually design something new. So two people can look at the same situation and see different realities: They see opportunities or the lack of them, possibilities or the lack of them."

Monday, August 03, 2009

Best Buy vs. Better Buys
WSJ, July 21, 2009

This tidbit highlights the unintended consequences of competitor actions, in this case bankruptcy. In the U.S., Best Buy and Circuit City were national retail chains that focused on selling electronics and were bitter competitors in almost every region of the country. About a year ago, Circuit City went bankrupt. The immediate expectation was that Best Buy would benefit.

I raise this issue because in my experience, both as a practitioner and consultant/teacher, I found when a business person firmly stated they knew what their competition (and for that matter, their customers) were going to do in reaction to one of their moves, they were inevitably wrong. In planning, you must force the organization to do a version of Scenario Planning (1 to 3 year time horizon) to try to appreciate all the possible outcomes of any change in the market—the idea of managing assumptions is critical.

"With fierce corporate rivalries, a competitor's bankruptcy represents the ultimate triumph. Or does it?
..........It took years for Best Buy to overtake Circuit City Stores, once the dominant specialty-electronics chain but now bust......
But Circuit City may have been pushing shoppers into Best Buy's arms......electronics usually are expensive enough that consumers want to shop around.
When Circuit City was in business, shoppers could compare prices easily, what with the two retailers often operating in nearby locations. Without Circuit City, many shoppers need to venture online.
Take televisions. Amazon.com, which often undercuts Best Buy's prices, gained 2.5 percentage points of market share for flat panels in the first quarter, compared with a year earlier. Meanwhile, Best Buy lost 0.7 percentage point...... Recent data suggest ....... for Best Buy, virtual challengers look likely to be harder to snuff out."

Wednesday, July 29, 2009

Three Levels of Innovation

These insights were extracted from an article titled:

Where innovation creates value.
FEBRUARY 2009 • Amar Bhidé
I thought this was an interesting way to define innovation, particularly for technology companies. I suggest going to the full article which talks about the impact of globalization on innovation and how it might affect the U.S. economy going forward.

"Innovation involves the development of new products or processes and the know-how that begets them. New products can take the form of high-level building blocks or raw materials (for example, microprocessors or the silicon of which they are made), midlevel intermediate goods (motherboards with components such as microprocessors), and ground-level final products (such as computers). Similarly, the underlying know-how for new products includes high-level general principles, midlevel technologies, and ground-level, context-specific rules of thumb. For microprocessors, this know-how includes the laws of solid-state physics (high level), circuit designs and chip layouts (midlevel), and the tweaking of conditions in semiconductor fabrication plants to maximize yields and quality (ground level).

Technological innovations, especially high-level ones, usually have limited economic or commercial importance unless complemented by lower-level innovations. Breakthroughs in solid-state physics, for example, have value for the semiconductor industry only if accompanied by new microprocessor designs, which themselves may be largely useless without plant-level tweaks that make it possible to produce these components in large quantities. A new microprocessor’s value may be impossible to realize without new motherboards and computers, as well.

New know-how……also requires interconnected, non- technological innovations on a number of levels. A new diskless (thin-client) computer, for instance, generates revenue for its producer and value for its users only if it is marketed effectively and deployed properly. Marketing and organizational innovations are usually needed; for example, such a computer may force its manufacturer to develop a new sales pitch and materials and its users to reorganize their IT departments."

Wednesday, July 22, 2009

Playing Well With Others
How to improve the relationship between the marketing and R&D departments—and increase the chance of coming up with successful new products
WSJ, June 22, 2009

This is a very important article from our own at Kellogg. At the end of the article, I summarize a framework I have used effectively that break down the barriers defined herein for the implementaion phase of an offering.

"Why can’t marketing and research and development play nice?

Both functions are essential to developing successful new products. But the two departments don’t get along nearly as well as senior management thinks. .
How big is the gap? Huge. According to a survey we conducted, some 69% of senior managers described relations between marketing and R&D as collegial, but only 34% of mid-level managers saw the relationship that way.

When we asked staff in each department what they thought about the staff in the other, the comments were even more revealing. R&D employees complained that marketers give them poor data, that the marketing department is too insistent about certain product features or benefits, and that marketers are mainly useful in developing launch plans rather than in actually coming up with new products.
Marketing, meanwhile, had its own beefs: R&D doesn’t include marketers early enough in the product-development process; R&D doesn’t understand marketing, or what it brings to the process; R&D takes the credit when a product succeeds, and blames marketing if a product doesn’t sell.

Such complaints are hallmarks of a dysfunctional product-development process. Both marketing and R&D have indispensable roles to play, but neither can reach its full potential without the other. Companies where such divides exist are more likely to miss out on the kinds of breakthrough products and market-research discoveries that can drive growth and profits for years.

In what follows, we share our strategies for getting both sides to engage more productively from the earliest stages of a product’s development.

1. Make sure everybody recognizes the value that each department brings to the process—and how one side complements the other.
While R&D tends to focus on technical issues and hard data, marketing zeroes in on what customers want and how much they will pay. In essence, R&D staff should be masters of the art of the possible, while marketers should master the art of the valuable, or knowing what people want and will pay for.
Marketers are seldom equipped to solve technical problems. Similarly, R&D often can’t see the difference between what a product can do and what its potential customers actually want it to do. Even in cases where developers engage directly with customers, the ability to ask the right questions and generate reliable, robust market insights is a complex skill honed over years.
One can discover many things that are technically possible, yet may have little or no value. On the other hand, a company may identify a valuable customer need but lack the technical know-how to satisfy it.
The point is not that R&D can’t learn to think a bit like marketers. They should be encouraged to do so. But don’t expect either side to perform the other’s tasks exceptionally well.
To boost mutual awareness, a number of companies we interviewed require their R&D professionals to articulate and, if possible, quantify the value of their work in terms of what it means to the customer. This often brings R&D and marketers together early in a project. Some companies also encourage or even require marketers to be technically proficient enough to be partners with R&D.

2. If one department or the other is dominating a company’s process for developing new products, bring the two more into balance.
It’s surprising how often one side is in the driver’s seat. At technology-based companies, R&D tends to hold the upper hand. At consumer-goods makers, it’s marketing. Each situation has its disadvantages.
When marketing has too much control, it stifles the creativity of engineers, who often feel they don’t have the time or backing to think of things beyond what the marketers want. At one consumer-goods company, both marketing and R&D professionals agreed that because of an incessant drive to follow predetermined launch dates—dates that were typically dictated by marketing—product advances were only incremental. R&D had to forgo technical opportunities because it was so often under deadline pressure.
Conversely, where R&D is king, marketing often is called in only at the end of the product-development process, when it’s time to develop a launch plan. At one company we’re familiar with, a company planned a major product launch after nine of its competitors were already selling a very similar product. The company conceded that its product had no advantage over the others. This company clearly should have gotten marketing involved in the development process much earlier.
One of the best ways to bring marketing and R&D more into balance is to create cross-functional teams to discover unmet needs of current or potential customers. A collaborative approach helps both sides experience each other’s contributions, and ensures both are at the table from the beginning.

3. Have the two sides speak a common language.
This is crucial for the departments to work together. They need to be able to communicate with each other, especially when it comes to understanding how a potential product relates to a customer need.
At a major oil company where the marketing staff was often put off by highly technical reports from R&D, senior management began requiring R&D to base its reports for marketing and sales on how the proposed new technologies would specifically help customers. A cover sheet for all technical briefings was created that required the speaker to describe all of the critical points in layman’s terms. A lot of researchers at the company said they found this challenging at first, but over time it improved their ability to collaborate with colleagues in other functions, not just marketing. The approach helped others across the company better understand the company’s underlying technologies.

4. Get out of your silos—up to a point.
The natural inclination for either department may be to stay inside one’s silo. But that is counterproductive. For instance, when R&D teams are excited about new technological opportunities, they should reach out to other business units and let them know what they’re working on. They should be advocates for the direction they think a product or technology should take.
However, they shouldn’t become solely focused on fulfilling the wishes of the different business units, which are generally focused on what they can sell today and in the relatively near future. Because of the focus on quarterly results, it is difficult for most business units to devote substantial resources to opportunities that might not blossom for three or more years. The challenge thus is building a portfolio that supports the incremental needs of current businesses, as well as long-term growth opportunities.

5. Focus on the consumer.
When both sides are encouraged to think in terms of what customers want, it helps clarify thinking about product designs and how resources should be allocated. When engagement and thinking in terms of customer needs become routine, everyone has a common vision for what is being developed and why…….
…..When marketing and R&D together are truly focused on understanding and acting on customer needs, it makes both of their jobs easier and their results more productive.
A few years ago, General Electric Co. of Fairfield, Conn., started a line of kitchen appliances called the Café Series, for people who love to cook and entertain. Marketing helped develop the concept of kitchen as café; industrial designers and other technical staff gave the appliances—refrigerators, stoves, dishwashers and ovens—a look and features that incorporated the café concept. Both R&D and marketing spent time with consumers cooking in their kitchens and taking notes.
Companies most capable of bringing R&D and marketing together around what really matters to customers will build a powerful competitive weapon. It’s not easy. But if it were, there’d be no money in it.

Culture Clash
• The Situation: Different priorities and ways of thinking often create gaps in understanding between marketing and research-and development staff.
• The Problem: Such gaps often mean that one side dominates the development of new products, giving short shrift to the other. When marketing dominates, R&D can be under too much pressure to hit on breakthrough ideas. When R&D dominates, new products can lack marketable strengths.
• The Solution: Companies should help both sides learn to appreciate each other’s strengths, and encourage them to work closely together at the earliest stages of product development."

In my teachings and practice I deploy a framework called the Opportunity Map (developed by MacMillan and McGrath and described in their fabulous book the Entrepreneurial Mindset, HBR Press). One aspect of this framework is that it forces all functions involved in developing and marketing an offering to define the key uncertainties associated with the offering. So, the marketing and full capability (technical, manufacturing, delivery, etc.) uncertainties are defined and the implementation plan is designed to resolve the uncertainties iteratively. The common language among the functions is the uncertainties. If done correctly, this framework forces the functions to work together in defining a common workflow for a successful introduction and does not allow one to get far ahead of the other. It tends to brake down the silos and force the organization to be customer focused since there are always uncertainties associated with the customer.