Microsoft (Yes, Microsoft) Has a Far-Out Vision
By NICK WINGFIELDAPRIL 30, 2015

http://www.nytimes.com/2015/05/03/technology/microsoft-yes-microsoft-has-a-far-out-vision.html?emc=eta1


Very encouraging article for the future of Microsoft and there are some learnings for everyone.

Satya Nadella, chief executive of Microsoft, is focusing on new research as a way to spur growth.
Last June, in the basement of the Microsoft visitor center in Redmond, Wash., Todd Holmdahl, a Microsoft hardware guru, and others nervously walked Satya Nadella, the new chief executive, through a demonstration of a secret project... 

..The team leaders thought this augmented reality product (HoloLens) had the potential to be the next big thing in consumer technology, as groundbreaking as the PC and the smartphone... 

...The HoloLens team members were confident in their creation. But they worried that Mr. Nadella, a two-decade Microsoft employee then looking at cost-cutting measures and mass layoffs, would kill it for being too risky and far-out.
Mr. Nadella didn’t flinch. 

“He said right away, ‘This is something that we’re going to do,’ ” Mr. Holmdahl said. “We are going to create a new product category, and this is the type of thing that Microsoft should be working on.” 

That response says a lot about the reshaped Microsoft Mr. Nadella envisions — one with fewer internal fiefs and with more willingness to favor big bets on new technologies over protecting legacy cash cows...

...Not long ago, the company had about a half-dozen internal systems for managing the development of software; Mr. Nadella is pushing everyone to use a single one, in the belief that top-notch internal tools will help it create top-notch products (CRITICAL). 

...He has rallied them around mantras, like making personal computing more personal through wearables and other devices. To better translate Microsoft’s innovation into products people want to buy, he has directed the company’s research group, the biggest in the technology industry, to work more closely with product engineers. 

And just as important, Mr. Nadella has shown a sense of humility...

... “Their arrogance consumed them,” (MAJOR TRAP FOR BIG, SUCCESFUL COMPANIES) said Marc Benioff, the chief executive of Salesforce.com, a longtime critic of Microsoft whose company reached an agreement to cooperate on software integration with Microsoft last year. “Now with Satya, they have a much more open mind about working with people.”

 

Big Ideas Mark the Path from Strategy to Execution
The path from strategy to execution should be energizing and inherently inspirational.

http://www.strategy-business.com/operations_and_manufacturing

This material may not be broadly applicable but it discusses when the leader or someone of importance in a company have a compelling ideas.

Business leaders know that great strategies with great execution produce winning companies. They also know that winning companies are far outnumbered by mediocre ones. What they may not realize is that it’s the path from strategy to execution that often separates the two. 

The typical path goes something like this: You start by setting your goals. These could be financially oriented (grow earnings a certain amount by so-and-so year) or strategic (become the leader in this-or-that market). Then you prioritize the actions that will get you there: invest here, cut there, reorganize this, buy that. And then you implement like mad: align the organization around your goals and priorities, review your progress quarterly, reward performance accordingly, and so on. Of course, some companies are much better than others at following this track. That could explain the difference between winning and mediocre companies — but in my experience something much more significant is at play.... 

...Walter (Cardinal Health), Schultz (Starbucks), Bravo, and Zeitz (Puma)  could have generated all the goals, actions, and implementation discipline that any “world class” executive would have wanted, but that would not have been enough to create a winning enterprise. Instead, they designed innovative strategies based on novel ideas they owned unconditionally, and their commitment to those ideas enabled them to lead their companies through thick and thin to execute their strategies. In other words, their path was problem-idea-strategy-leadership, not goals-actions-implementation. 

This tells us that mastering the strategy-to-execution challenge starts by asking two questions: 

•         What’s the big problem your company or business is trying to solve?•         What’s the big idea you have for solving it? 

If you have compelling answers to these questions, you can proceed to the next two: 

•         What strategy does your company or business have for commercializing its big idea?•         Do your company’s leaders own the idea as if it was their own (if it isn’t already their own)? 

Unfortunately, too many companies cannot make it past the first two questions. When that’s the case, they inevitably slide into a form of sleepwalking through an endless cycle of goals-actions-implementation — a cycle that’s doomed to produce mediocrity. And that’s no fun for the leaders or their organizations. 

The path from strategy to execution should be energizing and inherently inspirational. You shouldn’t need vision, mission, and purpose statementsto have that kind of atmosphere. It won’t work anyway. The fact is all companies (even the most “disciplined”) are a mess when you look inside them, with runaway bureaucracy, spirited politics, dispiriting waste, and pointless meetings. These everyday realities will suck the joy and energy out of anyone. To overcome them, you need leaders who have an exciting idea that solves a big problem, and a genuine commitment to seeing it through. This begets an organization with people who, even as they deal with the inanities of corporate life, intrinsically want to follow their leaders. That is how you master the strategy-to-execution challenge. 

Managing Risk with Your Innovation Portfolio
By: Langdon Morris

http://www.innovationmanagement.se/2015/05/07/managing-risk-with-your-innovation-portfolio/

This article reaffirms the importance of our use of McKinsey’s 3 Horizon Model in balancing your innovation portfolio.

Concentration Risk 

Concentration risk has been a subject of focused and eventually quite sophisticated research by economists and finance experts since the mid-twentieth century, when investing became professionalized, and investment managers began to grapple with the problems of investment risk that would affect middle class investors who were accumulating modest life savings.²  The new class of professional managers needed systematic ways to assess the risks of various types of investments so that they could create investment portfolios that would achieve targeted investment returns at well-understood risk levels for their clients. 

We know this today as the work of balancing our retirement portfolios by selecting a mixture among various sectors and types of investments, mostly stocks, mutual funds, and bonds, so that when we’re ready to retire we actually have enough money to live decently for a few decades. 

The design intent of any investment portfolio, whether it’s your retirement portfolio, the company’s treasury portfolio, a venture capital portfolio, or your innovation project portfolio, is identical: to manage risk strategically by choosing a variety of investments from across different marketplaces which have a variety of performance characteristics, such that you attain the appropriate level of overall risk while attaining the necessary level of return… 

….Most small businesses face the same sort of risk, because by definition they’re usually only in one or a few businesses, and if things were to go bad they might not have much, or anything, to fall back on. Concentration risk is one of the major reasons why the mortality rate for small business is so high (the other being just generally poor management). It’s worth noting in passing that the mortality rate for big business is pretty high also, and it’s climbing precisely because the big firms are also struggling to adapt to change, just as small business are. All the statistics indicate that big firms going out of business at a record and accelerating rate…. 

…Four Types of Innovation

Incremental innovations (Horizon 1) are generally small changes to existing products and services. Companies typically invest in incremental innovation in order to preserve or sustain existing market share, or perhaps to make modest gains in market share 

Breakthrough innovations (Horizons 2 or 3) are higher risk, and much like venture capital investing, when successful they result in much higher rewards. The distinctive character of successful breakthroughs is that they change the entire structure of the marketplace, which is, after all, the very definition of a breakthrough. Breakthroughs therefore create significant competitive advantage for the organization that creates the 

The third type of innovation is business model innovation (Horizons 2 or 3). In this case the objective is not specifically to develop or sell new products or services, but rather to provide a different and better sort of experience to customers. 

New venture innovations (Horizon 3), which comes about when an entirely new market needs to be explored and developed,...

… Overcome Concentration Risk
The principle of an innovation portfolio is consistent with any sort of investment portfolio, whether it’s stocks and bonds for your retirement account, or a portfolio of any investments that the treasury group in a big company’s finance department uses to get the best return from the available cash flow.
Venture capitalists design yet a third type of portfolio, typically investing in 10 or 20 high-risk companies in the expectation that a least a couple of them will break through to produce significant returns within a few years. 

The underlying premise of this type of investing is that investors must anticipate the future direction and needs of the market, and then seek investment opportunities that match this future vision, recognizing that while failure is common because of the high risks, the right combination of qualities and characteristics can also lead to huge successes.

The Haier Road to Growth—Part 2
Customers always come first for this Chinese appliance maker — even as it continually reinvents itself and expands around the world

http://m.strategy-business.com/article/00323

Haier Group is a Chinese multinational consumer electronics and home appliances company headquartered in Qingdao, Shandong province, China. It designs, develops, manufactures and sells products including air conditioners, mobile phones, computers, microwave ovens, washing machines, refrigerators, and televisions. The following blog postings will highlight how this innovative company became a global powerhouse.
This first posting highlights their approach to developing a room air conditioner for the Chinese market. This posting dives a bit deeper into some of their key capabilities.

Customer Service Leadership
….the sharp focus on customer service leadership has given the company consistency even as it propels Haier through dramatic changes… the company should never see itself as just a manufacturer of products, but instead as a provider of solutions to its customers’ problems. In the earliest years, that meant bringing new levels of quality and reliability to Chinese products. Later, it involved increasingly sophisticated forms of customization and new types of services. Through its simplicity and continuity, this principle has given all employees a reliable compass with which to make decisions, even in the face of disruptive market challenges such as new technologies or new competitors. 

The Niche Innovator 

(YOU NEED MORE THAN WORDS TO MAKE THIS HAPPEN)
In the late 1990s, a farmer in the Chinese countryside complained to Haier that his washing machine was full of dirt and was not functioning well. The local distributor sent a technician to the farmer’s house, where he discovered that the farmer had been using the washing machine not to wash clothes but to clean sweet potatoes. At this time, agricultural markets had been permitted to open in China, and cleaner vegetables commanded higher prices. The repair technician reported immediately to Haier’s headquarters about this practice, which was growing increasingly common in the region. Inspired, the company soon released a vegetable washing machine, designed to accommodate the extra grime and soil of the tubers. 

Around the same time, Haier’s researchers observed that unlike Western consumers, many Chinese people hand-washed their underclothes every day at home. They found it more hygienic and socially discreet to wash these separate from other clothes and away from public washing machines. In response to this consumer need, Haier launched a small, low-energy washing machine called the Little Prodigy that could easily fit into a small, crowded urban apartment. The machine became extremely popular, among, for example, families with newborn children. 

These episodes represented the start of the second reinvention at Haier: a new form of customer-responsive innovation. This was timely, because quality was no longer a great differentiator in China; other companies had caught up.(VERY TYPICAL--COMPETITIVE ADVANTAGES ARE TRANSIENT) Zhang (CEO) built upon the company’s hard-won workforce discipline, and the accompanying performance–pay relationship, to link employees directly to customers. To break down the “invisible walls,” as he called them, between functions, Zhang assigned teams made up of members of different functional departments to specific projects. He avoided the conflicts of a matrix structure by introducing “market chains” (based on the value-chain concepts of Michael Porter), in which it was possible for all individuals at Haier, no matter what their role, to trace their actions directly to the marketplace. These market chains replaced functional silos as the key organizational unit. 

This was also the phase in which Zhang began building Haier into a global company. He approached this challenge by adopting Mao Zedong’s strategy of “occupying the rural areas to encircle the city,” gaining strength first with niche products for sectors where there were few competitors. The company took full advantage of its customer-responsive innovation capability to do this. In 1997, recognizing the needs of college students in dormitory rooms, it launched mini-refrigerators in the United States. It followed with wine refrigerators in 2004. And then, during the 2000s, Haier parlayed that success into becoming a mainstream producer of appliances for the U.S. market. Meanwhile, in Pakistan, Haier sold extra-large washing machines designed for heavy robes. 

Intimacy and Entrepreneurship 

In 2005, Zhang recognized that most of Haier’s competitors in China were achieving acceptable levels of service responsiveness and that the company would once again have to reinvent its value proposition. He believed that Haier suffered from unnecessary time delays and guesswork about new product manufacturing volumes, which proved costly when it guessed wrong, and that could be reduced, if not completely avoided, by becoming more intimately aware of customer needs and wants. Employees would now have to get to know the customer better than they knew themselves, or, as Zhang put it, to “create zero distance with the customer.” 

Intimacy is a lot more complicated than responsiveness, and this third reinvention required employees to feel closer to their customers. Haier thus inverted its organizational structure into one based on self-organizing work units called ZZJYTs (an abbreviation for zi zhu jing ying ti, which translates to independent operating unit). Their three most critical functions — marketing, design, and manufacturing — were now supposed to work directly for customers. Instead of directing the employees who did that work, the ZZJYT managers became service providers to them, giving them the resources and guidance they needed to provide for customers. This minimized the decisions made at higher levels in the hierarchy, making the company more responsive to nascent market needs. Zhang went so far as to announce that this shift in organizational model would proceed even if revenues and profits showed signs of flagging, and even if it were necessary to use some of the returns from successful legacy offerings to make it work.
The new structure proved successful, and the ZZJYTs are still the basic organizational unit at Haier. Each comprises a team of 10 to 20 people — sometimes located in one place, other times virtual — who come from various functional roles and are brought together for a specific mission, and who are given profit and loss responsibility and accountability. They have their own independent accounting systems and complete autonomy in hiring and firing employees, setting internal rules about expenses and determining bonus distribution, and making almost any operational decision that typically would be made by an independent functional organization. 

Haier organizes its ZZJYTs in three tiers. First-tier ZZJYTs have the task of directly facing the market, understanding customer needs, and providing customers with the right products. Second-tier ZZJYTs are responsible for supporting the first-tier ones, providing them with the resources and the guidance they need. Third-tier ZZJYT managers are the business division managers or functional managers who set corporate strategies and direction for the whole group. A typical first-tier ZZJYT is composed of sales, R&D, marketing, and finance people. Everyone, whatever their function, is expected to talk to consumers regularly.  (VIEW THE ARTICLE ON THE DETAILS OF THESE TEAMS--WORTH THE READ)

The Haier Road to Growth—Part 1
Customers always come first for this Chinese appliance maker — even as it continually reinvents itself and expands around the world

http://m.strategy-business.com/article/00323

Haier Group is a Chinese multinational consumer electronics and home appliances company headquartered in Qingdao, Shandong province, China. It designs, develops, manufactures and sells products including air conditioners, mobile phones, computers, microwave ovens, washing machines, refrigerators, and televisions. The following blog postings will highlight how this innovative company became a global powerhouse.

This first posting highlights their approach to developing a room air conditioner for the Chinese market followed up by some of the key capabilities they developed to enable this type of innovation.

Start with 30 million responses on your QZone, Tencent, and other social media platforms — all to a simple question: “What do you want in air conditioning?” Then pay attention to the more than 670,000 people who take part in the online conversation that follows. You’re bound to come up with something cool — or, more precisely, “cool, not cold.” This concept, drawn from online responses, became the tagline for the Tianzun (“Heaven”), Haier’s advanced household heater/air conditioner/air purifier, released in 2014. Many Asian consumers don’t like the chilling effect of conventional temperature control. They’d much prefer to be “cool, not cold.” But there’s more to the concept than temperature. Air from most such devices in China is dry and dusty. The machines themselves are too noisy, or too likely to spread disease (bacteria live in air conditioning systems). Moreover, the machines look — well, like air conditioners. 

The Tianzun doesn’t have any of those drawbacks.(THEY ADDRESSED THE PAIN POINTS) It is an obelisk-like device with a small wind tunnel that draws air through it from the room where it is positioned. It has an Internet connection, so consumers can use their smartphones to warm or cool the room while on their way home. Some consumers probably knew they wanted that feature, but they didn’t know that they wanted to see the circle’s light shift from red to blue as their air quality improved. Once they saw that happening, they were hooked. The product is targeted directly at a consumer segment that no other company, in the West or the East, has recognized, and that could end up being much bigger than a niche. 

By building cooling machines based on this in-depth and multilayered approach to consumer insight, Haier is following its own core principle: “customer service leadership,” or the necessity to shape the future by giving customers what they want most (but may not have yet realized they can ask for). Even the decision to use the phrase “cool, not cold” in its Chinese advertising campaign reflects this principle. These are the words that customers use themselves, as opposed to a slogan dreamed up by a marketing professional. 

Just as unconventional was the cross-functional nature of the appliance’s launch. (YOU NEED MORE THAN JUST HAVING THE INSIGHT) While the marketing staff digested the insights gained from Haier’s online customer interactions, manufacturing was already considering what they would mean for production, procurement was speaking directly to suppliers about sourcing feasibilities, and after-sales service was developing plans for follow-through. Because they worked closely together from the start, managers from all these functions were moving forward in concert, addressing possible disconnects as they arose. This allowed products to go to market as soon as they were designed and developed, instead of waiting for each department to throw its work “over the wall” to the next one. Meanwhile, representatives of each company function conducted conversations directly with customers, thereby adding a responsive new dimension to the company’s consumer insight capabilities. 

Haier’s rapid introduction of the Tianzun air conditioner is typical of the company’s track record since the late 1990s. The company is known for several distinctive capabilities: a precise understanding of consumer needs, especially in China and other emerging markets; the ability to rapidly innovate new types of appliances that meet those consumer needs; the management of complicated distribution networks, a skill honed in the complex Chinese market; and a high level of execution ability, including the automation of factories to deliver products to consumer specification. (See “Haier's Capabilities System,” below.) These attributes have served it especially well in China, allowing Haier to outcompete more experienced appliance companies such as Whirlpool and Maytag in that country. In fact, Haier’s prowess — and particularly its emphasis on “what we can do and who we are” rather than on “what we sell and how we make money” — shows the kind of capabilities needed by companies that were founded in emerging economies if they are to succeed in the global sphere.