Popular Social Media Metrics - A Waste of Time?

I came across an interesting post in HBR today titled "Why Your Social Media Metrics Are a Waste of Time" by Ivory Madison. Popular social media metrics such as page views, unique visitors, registered members, conversion rates, number of Twitter followers, or Facebook likes are "interesting" at best. They're what Eric Ries, author of The Lean Startup, calls "vanity metrics." Vanity metrics look good but fail the "So what?" test. That is, vanity metrics are accurate, but irrelevant. Does it really matter if you have a million Twitter followers (an accurate number), if at the end of the day you cannot trace any product sales back to that metric (no relevance)?

So, Ms. Madison recommends the following four metrics as more useful alternatives:

1. Relevant revenue. Note the word "relevant," which refers to recurring sales in your core business. Don't count revenue from one-time or stagnant sources.
2. Sales volume. This can be a number like units sold or active subscriptions, something that shows whether or not enough people want to buy what you're selling.
3. Customer retention. Metrics like "new customers" can hide the fact that although you may attract 1,000 new users a month, you're losing 900, which means you're not going to scale.
4. Relevant growth. Too often, companies compound the stupidity of their choice of metrics by creating a metric tracking the growth of vanity metrics. You should be looking for a traceable pattern in which the actions of your existing customers create new customers. That's what Ries calls an "engine of growth."

My 2 cents - The above four metrics are "motherhood and apple pie." They are the holy grail of measuring the effectiveness of any activity; social media or not. The challenge is not that no one recognizes that these are the best metrics but that no one has figured out (or publicly announced) how to capture these metrics for Twitter or Facebook or any of the other popular social media sites.

The Bottom Line

As I said, an interesting post but unfortunately it falls short of presenting any new information. Most experts would agree that the current, popular social media metrics are less than optimal. The question is how do you measure the "right" stuff? And is this another example of not letting perfect be the enemy of good enough? 

Want to Innovate? Abandon Best Practices.

"Status quo is the enemy of innovation" is a concept I discuss extensively in my recent book, Living in the Innovation Age. In fact, that conviction is the basis of Principle #3 in my book - Innovation is "Where No Man Has Gone Before."

So, what have "status quo" and "innovation" got to do with best practices? Aren't best practices supposed to be a good thing? After all, best practices are the distilled essence of the learning of many individuals from years of experience, successes, and failures. Best practices are supposed to help ensure success and avoid past mistakes. Conventional thinking would agree. There are, however, two main problems with such conventional thinking and therefore with these so called "best practices."  

The first problem is that many best practices are rooted in past constraints and/or fallacies.  Freek Vermeulen explains this nicely in his recent blog posting titled "Which Best Practice Is Ruining Your Business?" in HBR. He starts the discussion with an excellent example of the best practice of printing newspapers on broadsheet format even though such a practice raised printing costs substantially. Despite the higher costs and inconvenience, newspapers were terrified of going against the established "best practice" assuming that customers equate quality newspapers with broadsheet. When finally, in 2004, the United Kingdom's Independent switched to the denounced tabloid size, it actually saw its circulation surge!

One reason why a best practice's inefficiency may be difficult to spot is because when it came into existence, it was beneficial. Decades ago broadsheet newspapers made sense since newspapers were taxed based on the number of pages. By using broadsheets newspapers were able to cut down taxes, lower costs, and make more money overall. But even when the tax per page was abolished, newspapers stuck to broadsheet printing as a best practice for quality newspapers and forgot that the real reason for broadsheets had nothing to do with editorial or content quality or even user convenience.

The second problem builds on the first problem and serves to reduce a company's differentiation and hence competitive advantage. By default, best practices are well documented, accepted ways of doing things. Also, by default, it then follows that everyone is adopting these best practices, sometimes without even realizing that they are doing so. For example, software packages such as Enterprise Resource Planning (ERP) systems and Customer Relationship Management (CRM) systems that make up the backbone of many company's core operations come with best practices codified in their business logic and database tables. So, when a company implements one of these ERP or CRM systems and leverages the built in capabilities they are in fact adopting the same "best practices" that everyone else is using. Therein lies the issue - best practices only serve to solidify the status quo not challenge it. In an era when customers demand creativity and innovation, that's just not going to cut it. In the long run, relying on best practices will doom you to mediocrity. Instead of getting bogged down trying to reverse-engineer the strategies of others, your time will be much better spent finding your own path. 

The Bottom Line

Innovation requires challenging the status quo and going "where no man has gone before." That cannot be achieved by following best practices since such practices at best solidify the current state of knowledge. Innovation requires breaking away from best practices and creating "next practices" that can enhance differentiation and provide sustainable competitive advantage.  

Dealing with Disruption

In my previous posting titled Are All Reverse Innovations Disruptive?, I discuss two key factors that help determine whether a "reverse" innovation has the potential of becoming disruptive - the sustainability of a low cost advantage and the effectiveness at closing of the performance gap.  Both of these provide insight into not only how the disruptor might behave but also as to how the "disruptee" should counter behave in response. For example, by understanding the underlying cause of competitive advantage, the "disruptee" might be able to change the definition of what consumers perceive as "value" thereby "disrupting the disruptor."

The December 2012 issue of the Harvard Business Review (HBR) has a couple of articles that take the above discussion further. Dealing with disruption essentially consists of two parts - identifying the source of disruption and executing a strategy to overcome its potential impacts. In the first article, Surviving Disruption, authors Maxwell Wessel and Clayton M. Christensen explain how disruption is less a single event than a process that plays out over time, sometimes quickly and completely, but other times slowly and incompletely. Therefore dealing with disruption requires a systematic way to chart the path and pace of disruption so that you can fashion a more complete strategic response. They propose the following three steps to help determine whether the disruption will hit you dead-on, graze you, or pass you altogether, you need to:

1. Identify the strengths of your disruptor’s business model;
2. Identify your own relative advantages;
3. Evaluate the conditions that would help or hinder the disruptor from co-opting your current advantages in the future.

To help evaluate the relative sustainability of the advantages identified in bullets # 1 and 2 above, the authors propose a systematic assessment of five kinds of barriers to disruption, listed below from easiest to overcome to hardest.

1. The momentum barrier - Status quo is a difficult thing to change.
2. The tech-implementation barrier - Does existing technology suffice?
3. The ecosystem barrier - Also known as the platform advantage.
4. The new-technologies barrier - The technology needed to change the competitive landscape does not yet exist.
5. The business model barrier - The disruptor would have to adopt your cost structure.

Perhaps, most important though, according to the authors, is for the "disruptee" to understand and segment their customers by the "job" they want to get done. As an example, they discuss the ongoing battle between online grocery retailers and the brick-and-mortar grocery stores. Out of the three job categories the authors identify - "emergency item" shoppers, "dinner" shoppers, and "non-perishables & brand" shoppers - only the last category is currently susceptible to disruption based on the three step and five barrier analysis presented by the authors. The two crucial questions then become "what can the disruptor do to win over the other two categories of shoppers?" and "what can traditional stores do to keep all three categories of shoppers to themselves?"

The answer to the second question is provided in the next article titled Two Routes to Resilience in the same issue of HBR. The authors Clark Gilbert, Matthew Eyring, and Richard N. Foster explain that companies facing disruption (such as the grocery stores above) need to reinvent themselves in response to disruptive market shifts, technologies, or start-ups. But rather than a complete upheaval they propose that companies under assault pursue two distinct but parallel efforts: 

• Transformation A should re-position the core business, adapting it to the altered environment. 
• Transformation B should launch a separate, disruptive business that will be the source of future growth. 

Such an approach allows the company to realize the most value from its current assets and advantages, while giving the new initiative the time it needs to grow. Fueling both transformations is a “capabilities exchange” that allows both efforts to share resources without interfering with the mission or operations of either. The authors walk readers through the dual transformations of three companies that were facing massive disruption: the Deseret News, which was losing advertising to online upstarts; Xerox, whose copier business had been eroded by Asian rivals; and Barnes & Noble, which was threatened by e-books. 

The Bottom Line

Dealing with disruption has no silver bullet. It is a complex undertaking with the appropriate response being vastly different on a case-by-case basis. Yet, there are guiding principles that can help. Understanding your consumers and their "jobs" is crucial to pinpointing the segment of your consumers that are most vulnerable to disruption. Next is identifying the source of the disruptor's competitive advantage and how sustainable it is in the face of the five barriers discussed above with respect to each consumer segment. Finally, executing the response strategy is best thought as two discrete and parallel transformations - rebuilding the core and disrupting the core - with a well thought out capabilities exchange fueling both.

Are All Reverse Innovations Disruptive?

Vijay Govindrajan is one of management's top thinkers today. One of his more recent insights lies within a concept that he has called "Reverse Innovation" in which innovation is driven from developing countries to the developed ones in contrast to the typical, and perhaps more intuitive, globalization model that drives innovation the other way around. The traditional flow of innovations in our economy has been from the developed to the developing nations. Vijay calls this phenomenon "glocalization" in which companies take successful products that they have created for customers in their Western markets and modify them, most often by stripping off many of their features, for distribution all around the world at lower price points. And while glocalization has proved effective in reaching the top segments of the market in developing nations – buyers with needs and resources similar to those in the developed world, it has not proved to be an effective market penetration strategy. The reason – most growth opportunities in emerging markets are not at the top but in the middle market and below, where the gaps between customers’ needs and those of their developed-world counterparts are enormous. While success in ripe developing markets might be reason enough to embrace reverse innovation, there is more good news. Because the global economy is richly interconnected, innovations developed for emerging economies can be extended to the developed world. Such "extensions" generally occur in two phases - first in under served, niche areas of the developed markets and then "disruptively" in the mainstream markets.

Hence the question - Are all Reverse Innovations Disruptive?

I found the answer to that question in a recent article titled "How Disruptive Will Innovations from Emerging Markets Be?"  in the MIT Sloan Management Review. In his informative article, the author Constantinos C. Markides eloquently describes the two conditions that any "reverse" innovation must satisfy to become disruptive. First, it must start out as inferior in terms of the performance that existing customers expect, but superior in price. Second, for the innovation to truly become disruptive, it must evolve to become “good enough” in performance (attracting mainstream customers from the earlier generation of incumbent products) while at the same time remaining superior in price. In other words, it must become “good enough” in performance and superior in price. So essentially, as the author summarizes, one must answer the following two questions:

1. Will the emerging-market innovators continue to have a significant price advantage over competitors from more developed countries?
2. Will the emerging-market innovators succeed in closing the performance gap so that customers in more advanced economies come to see their products as “good enough”?

There are many success stories that illustrate the disruptive nature of reverse innovations. Disruptive innovation has been credited as the strategy that led to Japan’s dramatic economic development after World War II. Japanese companies such as Nippon Steel, Toyota, Sony and Canon began by offering inexpensive products that were initially inferior in quality to those of their Western competitors. This allowed the Japanese companies to capture the low-end segment of the market. As the performance of their products improved, they began to move upmarket, into segments that allowed them more profitability. Eventually, they captured most of these segments and pushed their Western competitors to the very top of the market or completely out of it.

What many people do not realize is that there are many stories where reverse innovations have failed to be disruptive. In the razor business, Bic emerged as a huge, low-cost disruption to Gillette in the 1970s and quickly succeeded in capturing 25% of the disposable razor market by the early 1980s. Yet Gillette countered with its own line of inexpensive disposable razors, and Bic ceased being a major threat to Gillette in razors by the early 1990s.

So why do some reverse innovations disrupt industries while others don't? Once again, the answer lies in how well the reverse innovation stands up to the two fundamental questions posed by the author above.

As the author explains in his article, the first indicator of success lies in the source of the "low cost" advantage of the reverse innovation. If the source of the cost advantage is low labor costs or a reengineered product that requires fewer or cheaper components, incumbents can find a way of neutralizing these advantages. However, there is one source of cost advantage that is more sustainable than others. This is the business model of the disruptors. A cost advantage that comes on the back of a business model that is not only different from but also conflicts with the business model of the established companies is more sustainable than other cost advantages. This explains, for example, the success of low-cost airlines over traditional airlines.

The second indicator of success is the reverse innovator's ability to close the "Performance Gap" between their innovation and the mainstream product/service. As the author explains, reverse innovators have a number of options in how they go about closing the performance gap. However, less obvious is the proposition that whether the reverse innovator's products come to be seen as “good enough” depends not only on what they do, but also on what incumbents do to influence consumers’ expectations of what is “good enough.” As an example, consider how Nintendo dealt with the onslaught of gaming consoles in its bread and butter market space. Nintendo’s response to all of this was a classic strategy of shifting the basis of competition and changing consumers’ perceptions of what is “good enough” in this market. Rather than follow Sony and Microsoft down the performance trajectory, Nintendo introduced the Wii on the basis of family entertainment, a benefit that the disruptors were not paying attention to. Nintendo’s strategy was essentially to expand the market by developing consoles that would support simple, real-life games that could be learned quickly and played by all members of the family, including the very youngest and the very oldest. By 2007, the launch of the Wii led to household penetration of consoles rising for the first time in 25 years. The console outsold the PS3 three-to-one in the Japanese market and five-to-one in the United States.

The Bottom Line
Reverse innovation is a powerful force for good in developing countries. Not only does it benefit the innovator but it serves to uplift the lives of all those to whom mainstream products were simply inaccessible or impractical. Longer term, many (but not all) reverse innovations have the potential to disrupt mainstream markets and incumbents. Success, however, depends on two critical factors – 1. basing the cost advantage on a sustainable and "hard-to-imitate" source (such as a business model) AND 2. becoming "good enough" in the eyes of the "mainstream market." Conversely, incumbents must constantly be on the look out for reverse innovations that have the potential to be disruptive and proactively undermine them by redefining "good enough" and/or changing the rules of the game.

Are all "Big Ideas" really that "Big"?

Today I finally got a chance to catch up on some reading. First up was my November 2012 issue of the Harvard Business Review (HBR). I quickly turned to the "Big Idea" section that had caught my attention earlier. Titled "Accelerate!" and written by the well-regarded author, John Kotter, the "Big Idea" he discussed was how the most innovative companies capitalize on today's rapid-fire strategic challenges and still make their numbers. Frankly, I was not too impressed with the article. It seemed to primarily regurgitate and re-package concepts that we have been talking about for close to 20 years.

Here's my paraphrased version of the basic premise of the article:

• Companies are designed for efficiency not innovation.
• Companies must find a way to manage the present while also creating their future.
• In a rapidly changing environment, what is value-adding "context" today can quickly become "vanilla" core tomorrow.

This premise should be of no surprise to anyone who has not just crawled out from under a rock. So, what is Kotter's advice to deal with these obvious conditions? He recommends creating a second "operating system" devoted to strategy and innovation. Kotter defines a company's operating system as the collection of its organizational hierarchies and processes. Since the primary operating system is too focused on day-to-day tactical operations, a secondary operating system is essential to ensuring that an all important focus on strategic initiatives is not lost. Here's why I am not at all excited by these suggestions - there's nothing new here. For decades companies have had a "second operating system" to deal with the "new and unexpected." This second operating system has been called many things including the all too famous "skunkworks". And based on years of various success (and failure) case studies, we now know that such skunkworks initiatives can be made much more effective by integrating them within the core of an organization's culture and strategy. In fact, even I talk quite extensively about this in Part two of my recent book, Living in the Innovation Age.

So, I am sorry Mr. Kotter. Although, I am still a fan of your writing, I am unimpressed by your latest article in HBR. 

Why Innovate When You Can Litigate?

Over the past few months, I have written several blog posts about a topic that I call the "Legal Side of Innovation" and I first covered in my book, Living in the Innovation Age. The "Legal Side of Innovation" is a phenomenon in which companies are increasingly using patents and other intellectual property (IP) as a way of attacking each other in highly innovative and competitive areas such as smartphones and tablets. Essentially, IP law has become a double-edged sword that on the one hand protects an innovator's hard work and yet on the other hand creates impediments in the very road to innovation that it seeks to promote.

Now it seems that companies have learned how to use IP laws to their advantage not only as a way to stop their competitors from innovating but as a "revenue generator." Indeed, the new mantra appears to be "why innovate when you can litigate." Just recently, Samsung and HTC together have paid Microsoft $792 million in "patent royalties" in a single quarter. And in August, Apple won an overwhelming victory over rival Samsung in a widely watched federal patent battle, a decision that some worry could stymie competition. The jury, after three days of deliberations in the complex U.S. District Court trial in San Jose, awarded Apple more than $1 billion after finding that Samsung had infringed on six patents by copying the look and feel of its mobile devices.

The Bottom Line -
The "Legal Side of Innovation" is real and here to stay. So, what's a technology geek to do? One option - Consider getting a law degree instead of that PhD in rocket science or even in lieu of a plain old MBA. :)

Innovation - Does Size Matter?

Does [company] size matter in innovation?

That's a question that I have been asking for a while in my blog (see my postings from September 28 and October 3). The opinions in the HBR blog postings have been all over the map, sometimes contradicting one another in a matter of days (and you thought flip flopping only happened in politics!). My opinion has always been that company size and innovation do not have a strong correlation - positive or negative. Ultimately, successful innovation is a function of organization strategy and culture alignment with the desire to innovate.

Well, finally, a blog posting in HBR that supports my position and challenges that wavering positions on size vs. innovation within the HBR blog postings. The posting titled,
Innovation Isn't Tied to Size, but to Operating Rules, by Nilofer Merchant concludes that if an organization knows what principles of innovation work, then innovation follows - regardless of size.

May I recommend my book, Living in the Innovation Age - Five Principles for Prospering in this New Era, as a starting point for which principles of innovation do work? :)

McDonald's Successful Innovation Strategy - Be Global, Act Local

Ever wonder how McDonald's has been so successful in its growth into a diverse range of international fast food markets?

Their secret is that they are becoming global by acting locally! In the United States, the McDonald's brand has been synonymous with affordable hamburgers for decades. But that is not the case in McDonald's foreign markets. I tell the story of the beginnings of McDonald's' transformation in Chapter 7 of my book, Living in the Innovation Age. It all began in 2003 when McDonald's' new chief executive officer, Jim Cantalupo, redefined their primary customer from real-estate developers and franchise holders to the people eating at their restaurants. That decision had profound implications in the way McDonald’s did resource allocation. McDonald’s reallocated resources from centralized corporate functions to regional managers, who were encouraged to customize local menus and store amenities to suit local tastes. Until 2003, McDonald’s had a fairly common menu (i.e. hamburgers) worldwide. It now serves breakfast porridge in the United Kingdom, soup in Portugal, and burgers that are topped with French cheese in France.

A recent blog posting in HBR by Nataly Kelly further picks up on the elaborate menu that McDonald's has in its international markets. For example, if you go to a McDonald's in Singapore you can order jasmine tea and a Shaka Shaka Chicken, which you create by dumping spice powder into a bag and a quick "shaka" of the bag coat your chicken patty in the bag with local spices. In Japan you can order a Koroke Burger, which consists of mashed potato, cabbage, and katsu sauce. In Hong Kong you'll find a burger that is served not between sesame seed buns, but between rice cakes. And finally, visit India, where eating beef is against religious rules for about 80 percent of the population, and you won't find any beef burgers on the menu whatsoever. Nataly summarizes the following five key takeaways from McDonald's' success in expanding into such wildly different international markets:

1. Don't confuse your brand with your products. 
2. Figure out which products have international appeal.
3. View a new market as a chance to take on new brand attributes. 
4. Remember that "small markets" may very well define your future. 
5. Let your customers tell you what they want. 

The Bottom Line

As I explain in my book, defining and understanding your primary customer is absolutely critical to successful innovation. More importantly, it's essential to realize the differences that exist in the "tastes" of your primary customer by market. As you find yourself expanding into diverse markets, remember McDonald's' strategy, which I have summarized as "Be Global, Act Local."

GM's First Mover Disadvantage

One of the topics I discussed in my book, Living in the Innovation Age, is the fallacy of the first mover advantage. While there are cases where first movers have been highly successful, there are plenty of cases of disillusionment and despair as well. I used the meteoric success of TiVo followed by a decade of sagging profit as a case-in-point in my book. Here's another good example. The October 1 - October 7 issue of Businessweek discusses how GM too might have fallen prey to the "First Mover Advantage Fallacy" with its early introduction of the redesigned  "2013 Chevy Malibu" in February 2012. While the initial results following the introduction were positive, it turns out that GM might have been better served if it had delayed its launch until it had the complete lineup ready. That's exactly GM's competitors - Toyota, Honda, Nissan, Ford, and Hyundai - did. They waited and learned from early customer reactions to the Mailibu, which is a major reason why today the Malibu is having a tough time matching up in key measures such as prices, gas mileage, and technology gadgets.

Check out the Businessweek article titled "GM's First Mover Disadvantage."

The Bottom Line
Don't be too quick to assume a positive correlation between successful innovation and being first to market.

Is the P&G Innovation Well Drying Up?

I talk quite a bit about P&G in my book "Living in the Innovation Age." P&G is an admirable company that has thrived for 175 years with one innovative product after another. Starting with their "Ivory" soap in 1879 to the first all-vegetable shortening oil "Crisco", to "Deft" and now "Tide", Crest, Pampers, Pringles, Febreze, and Swiffer, the list goes on with amazing products that are household names. Over the decades, P&G has not only innovated products but has innovated product "categories"! As a testament to its commitment to innovation, P&G has more than 1,000 Ph.D.’s among the 8,000 employees at its 26 innovation facilities around the world.

Businessweek recently published an excellent article titled "At P&G, the Innovation Well Runs Dry." The article explains how lately there’s been a dearth of pioneering brands emerging from the world’s largest consumer-products company. Spending on research and development in fiscal 2012 ended June 30 was $2.03 billion, or 2.4 percent of sales, the same as the prior year and down from 3 percent of sales in 2006. Add to that the fact that P&G’s most recent homegrown blockbusters - Swiffer cleaning devices, Crest Whitestrips, and Febreze odor fresheners - were all launched at least a decade ago. Considering that the company’s current product pipeline is mainly focused on “reformulating, not inventing, products," the situation does appear a bit dire for P&G.

So, is P&G losing it's edge in the game of innovation? I encourage you to read the aforementioned Businessweek article, which does a decent job of exploring this question with a combination of facts and expert opinions.

The Bottom Line
P&G has become a household name because of its ability to innovate - new products and new product categories. Sustaining its competitive advantage depends on it being able to maintain its leadership with such homegrown, innovative products that are not just "reformulations" of existing products but true revolutions that continue to delight its customers.

Part 2 - Can Big Companies Innovate? The Saga Continues...

On September 28, I had posted a blog entry titled "Big Companies - Can They Innovate or Not?" in which I had discussed two seemingly "ying and yang" blog postings in the Harvard Business Review (HBR) blogs on innovation at big companies. Well, today, the author of the second blog post that discussed why big companies were often not set up for innovation posted another post titled "How Big Companies Should Innovate" in which he talks about how such big companies could innovate.

I am just smiling away... not just because I find this discussion amusing but also because his ideas line up quite nicely with the five principles I discuss in my book "Living in the Innovation Age". So, there's the plug for my book... now go read it! :)

The "Opposable Mind" of Steve Jobs

I just read an excellent blog posting titled "Was Steve Jobs a Role Model for Leaders?" in the Harvard Business Review (HBR). In his post, Darren Overfield discusses the "polarizing" discussion about Steve Jobs as a leader. Darren summarizes this with reference to a recent Wired article by Ben Austen that aptly labeled these two camps "acolytes" and "rejecters". Acolytes see Jobs as brilliant, citing his leadership as the reason behind Apple's phenomenal results. Rejecters see him as arrogant and deeply flawed, leading Apple to meteoric success in spite of his often boorish behavior. So, which one is it?

Darren leads the reader through an interesting discussion and concludes with what I believe is a brilliant deduction -

"the best way to be an effective leader is to become a master of opposites — simultaneously developing as a "people leader" and as an innovative, strategic leader with a bias for execution."

Insightful!

Big Companies - Can They Innovate or Not?

I love the "Headlines" portion of  "The Tonight Show with Jay Leno," especially when he shows two completely contradictory headlines, side-by-side, in the same newspaper!

Well, I just came across a similar situation in the Harvard Business Review (HBR) blog emails that I subscribe to. Yesterday, I saw an intriguing blog posting from Scott Anthony titled "Big Companies Can Unleash Innovation, Rather than Shackle It." He makes his case convincingly stating three reasons why "big companies" are better poised for innovation than their smaller counterparts.

Guess what? Today's email from the HBR prominently has a blog posting by Maxwell Wessel titled "Why Big Companies Can't Innovate." Not surprisingly, he too makes his case convincingly well. 

So, which is it? 

I know, it's easy to make the case that these postings are not contradictory at all. It just means that while big companies are not good at innovation in general, they are better poised to blow their smaller counterparts out of the water if they just put their hearts into innovation. Ok, I can buy that but I would have expected HBR (or the blog posters themselves) to make this connection for us.  

Regardless, HBR blogs are always informative to read... and just like today, can also sometimes help put a smile on your face.

Challenging the Status Quo Starts with Asking the "Right" Questions

Most of you are probably familiar with the story "Ali Baba and the Forty Thieves" in One Thousand and One Nights. The gist of the story boils down to Ali Baba stumbling upon a magical phrase "iftaḥ ya simsim," which translates into "open, O sesame", that opens the mouth of a cave in which forty thieves have hidden a treasure.

This story has quite a bit of similarity with the real world. Most of are like Ali Baba, in search of that magical phrase or key to open the riches of innovation. What might that magical phrase be?

Well, a recent blog entry by Warren Berger in the Harvard Business Review (HBR) discusses a "secret phrase" that successful innovators often use. The phrase boils down to three simple words that when used together have the power of stimulating the thought process and get those creative juices flowing. So, what are these magic three words?

"How Might We"

As Berger explains in his blog entry, "the "how might we" approach to innovation ensures that would-be innovators are asking the right questions and using the best wording. Proponents of this increasingly popular practice say it's surprisingly effective — and that it can be seen as a testament to the power of language in helping to spark creative thinking and freewheeling collaboration." 

It makes sense. Talking about challenges discourages problem solving and inhibits innovative thinking. Additionally, it's not just about asking questions because the wrong questions such as "why do we do it this way" or "how should we change" imply judgement that could create an atmosphere of defensiveness as opposed to collaboration. Berger quotes business consultant Min Basadur, who explains that "by substituting the word might you're able to defer judgment, which helps people to create options more freely, and opens up more possibilities."

The Bottom Line - As I mention right from Chapter 1 in my recent book Living in the Innovation Age "Status Quo is the Enemy of Innovation." Principle #3, Innovation is "Where No Man Has Gone Before," in my book also discusses how the best approach of overcoming this status quo is by asking the right questions such as "what if", "why", and "why not". "How Might We" is an excellent question to help you explore the next level of possibilities created by the preceding three questions.  

Crowdsourced Movies... Way Cool

Bloomberg Businessweek featured Joe Sumner as its innovator of the week in its July 23-29, 2012 issue. Besides being son of Gordon Sumner, better known as Sting, he is founder of Vyclone, a company lets a number of people in close proximity shoot a video on their own iPhones, upload the clips, and view a movie that is automatically spliced together from the different angles. A simple to use video editor even lets users toggle from one angle to another with the tap of a finger. Such crowdsourced videos will most certainly have an impact on citizen journalism and home movies allowing non-professional users weave together multiple videos to provide richer, fuller stories.

Check out the full article here.

Interestingly, Joe came up with his idea in 2010 after he watched about 450 videos of a performance of his rock band Fiction Plane on YouTube. These videos had been uploaded by fans with mobile phones. The footage was mostly grainy, shot from awkward angles, and had horrible sound. That's when he realized the need for a way to link all of these videos together and make a compelling movie. Many of us have probably thought of something similar as we've watched videos on YouTube. The difference is Joe did something about it. As I discuss in Principle# 1 of my book, Living in the Innovation Age, Innovation is One Percent Ideation and 99 Percent Implementation. Being the son of Sting doesn't hurt either! :)

3M Embraces Open Innovation

What so you think happened to a company that began by mining stone from quarries for use in grinding wheels over a century ago? Would you believe that same company today has over 76,000 employees, 55,000 products, and operations in more than 70 countries? Over the past century 3M has created a vast array of amazing products that are now household names. For example, any other company would have long discarded an adhesive that did not perform its job of sticking things together and would have recycled its yellow scrap paper; however 3M took those two ingredients and created Post-It notes.

But even 3M is not immune to challenges in making sure that it continues to be an innovation leader. For years 3M prided itself on at least 33 percent of its sales from products released in the past five years. Today, 3M struggles to keep that level at 25 percent.
Just over a decade ago, 3M tried to fix the problem by hiring James McNerney of GE fame as the new CEO on December 5, 2000. Not surprisingly, the biggest change he introduced was with GE's Six Sigma program with the goal of decreasing production defects and increasing efficiency. Wall Street loved his changes as 3M's lackluster stock jolted back to life and McNerney won accolades for bringing discipline to an organization that had become inefficient and sluggish.

Sadly, innovation at 3M, however, did not come back. I document the case study in my book, Living in the Innovation Age (See the side box - When Good Metrics Go Bad).

Well, 3M has since abandoned its rigorous Six Sigma based approach to innovation in favor of one based on openness and collaboration. Principle #4, Innovation Seeks to be Free, in my book discussed two mainstream techniques that are based on such openness, transparency, and collaboration. 3M's approach is based on what is referred to as Open Innovation, in which ideas are encouraged from everyone and everywhere, inside and outside the organization. Fred J. Palensky, Chief Technology Officer at 3M, recently discussed 3M's Open Innovation initiatives in an interview in Strategy+Business magazine where he provided an example of an entirely new kind of sandpaper that came about as a result of Open Innovation. The mineral technology came from the abrasives division, some of the shape technology came from optical systems, coating technologies came from the tape division, and mathematical modeling and fracture analysis came from the corporate research center. Altogether, the abrasives division used seven different technologies to create the product, only two of which came from the division itself, which is a testament to the power of Open Innovation. Of course, Open Innovation is only truly possible in the presence of a highly collaborative culture and innovation-focused leadership. I discuss both of these concepts in Chapter 7 of my book.

The Bottom Line - 3M owes its success to innovation. Yet, just a few years ago, it was struggling in this very core competency. Experts agree that the drop in innovation was not surprising. Efficiency programs such as Six Sigma are designed to reduce variation and eliminate defects. But these types of initiatives can have an adverse effect on creativity and innovation, both of which thrive in an environment where failure and risk taking are tolerated, encouraged, and even celebrated. Not surprisingly, 3M’s current CEO cut back many of McNerney's innovation initiatives and in fact, has gone in an opposite direction of Open Innovation, which is actually much better suited to 3M's innovation culture.

Apple pays $60M to settle iPad case

On February 14, I had blogged about the troubles Apple was having over the use of the "iPad" name in China. Later on March 7, I posted a blog on China's baffling trademark system.

Today, Apple has paid $60 million to settle a dispute in China over ownership of the iPad name. Apple's dispute with Shenzhen Proview Technology highlighted the possible pitfalls for global companies in China's infant trademark system. The outcome also reflects Chinese courts' preference for encouraging adversaries in commercial disputes to settle instead of pushing for a ruling.

The Bottom Line - The Apple case has once again highlighted the possible pitfalls for global companies in China's infant trademark system. It also highlights a tension within the communist government that wants to cling on to its protectionist practices and yet wants to attract technology investors to develop China's economy.

Innovation - Does it pay to be the tortoise or the hare?

Once upon a time there was a hare who, boasting how he could run faster than anyone else, was forever teasing the tortoise for its slowness. 

Then one day, the irate tortoise answered back: “Who do you think you are? There’s no denying you’re swift, but even you can be beaten!” 

The hare squealed with laughter. “Beaten in a race? By whom? Not you, surely! I bet there’s nobody in the world that can win against me, I’m so speedy. Now, why don’t you try?” Annoyed by such bragging, the tortoise accepted the challenge. 

So, who won the race? We all know it was the slow and steady tortoise.

Innovation is a race as well and the winner, as Scott Anthony writes in his blog "First Mover or Fast Follower?" on HBR is the first one to the finish line.

To be perfectly clear, it's not that first movers never win. Of course, there are plenty of examples where first movers have done very well.  At the same time, as I document in my discussion on the "First Mover Advantage Fallacy" in my recent book, Living in the Innovation Age, first movers are often the first to rush off a cliff. In other words, they are either running in a race not worth running or they are just simply running in the wrong direction towards a cliff. 

The Bottom Line - Think of innovation as a race. It's not just speed but endurance matters as well. Starting first is great, but a race is about finishing first. Ultimately, though, you also need to be in the "right" race. If all you are doing is racing, hard and fast, towards a cliff then being first or following fast isn't going to help at all. Everyone is going to be falling off the cliff. So, pick your races wisely and enter them for the long haul picking up momentum as you proceed.

Apple kicks Google Maps off the iPhone... bundles its own Maps... Wait a minute!

I just read that Apple has kicked Google Maps off iPhone in favor of an Apple-designed alternative built into the new software for mobile devices, iOS 6, which will be released this fall. Those who want to continue using Google Maps will have to go through additional hurdle, such as finding and installing its app.

Wait just a $%#&#@ minute!

Does anyone remember United States v. Microsoft? As a reminder for those who don't, it was a set of civil actions filed against Microsoft Corporation pursuant to the Sherman Antitrust Act of 1890 Sections 1 and 2 on May 18, 1998 by the United States Department of Justice (DOJ) and 20 states. The plaintiffs alleged that Microsoft abused monopoly power on Intel-based personal computers in its handling of operating system sales and web browser sales. The issue central to the case was whether Microsoft was allowed to bundle its flagship Internet Explorer (IE) web browser software with its Microsoft Windows operating system. Bundling them together is alleged to have been responsible for Microsoft's victory in the browser wars as every Windows user had a copy of Internet Explorer. It was further alleged that this restricted the market for competing web browsers such as Netscape Navigator or Opera that had to be downloaded separately or had to be purchased at a store.

Isn't Apple behaving similar to how Microsoft acted years ago in an attempt to win the browser wars? Only in this case, the "war" isn't really over mapping software; it's really about market share in the lucrative smartphone market - Apple's iPhone Vs smartphones based on Google's Android software. 

It's no secret that Apple and Google are locked in a fight for the attention of hundreds of millions of mobile device users. The battle has been building since Google's 2008 release of its Android operating system to compete against the iPhone. Android smartphones from companies such as Samsung and Google's own Motorola division are currently the chief alternatives to the iPhone. Not surprisingly, Apple has sued those manufacturers, accusing them of ripping off the iPhone's ground-breaking features (see my blog post titled Apple's "Legal Side of Innovation"). Google's Maps application has resided on the iPhone since the device's 2007 debut. In fact, at the time, the companies were so close that Eric Schmidt and Steve Jobs appeared on stage together to hail their kinship. But Android has deeply soured the relationship to the point where before he died last October, Jobs told his biographer, Walter Isaacson, that he viewed Android as a form of "grand theft" from Apple and declared "thermonuclear war" against his former ally. 

Well, the war is definitely on!

"Feel Good" Innovation that Saves Lives!

Most of us immediately think of Apple and its amazing line of "i" products when we hear the term "innovation." Or maybe we think of Google or some other technology that has transformed our life in ways we barely imagined. But innovation isn't just about technology nor is it just about amazing "things" that make our life easier or more fun. For example, in my recent book, Living in the Innovation Age, I talk about a simple innovation called the "solar light bulb", which costs less than three dollars but has had an unimaginable positive impact on the slum dwellers in Philippines. This simple yet effective innovation is the reason why this year more than a million homes in the Philippines will have daylight in their otherwise dark and cramped homes! Now that's the kind of innovation that makes you feel all warm and fuzzy.

A couple of days ago I read an article in Computerworld titled "Technology for the greater good." This article was about using technology for innovation. However, it was not the "Apple creating the next iPhone" type innovation but rather the "solar light bulb" warm and fuzzy type innovation I discussed above.

Here's one example. A mother in Tanzania walks for three days with a sick child on her hip, only to arrive at a rural clinic whose inventory of malaria medicine is depleted. It's a matter of life and death for the mother and child. But from a business standpoint, it's a straightforward supply chain issue. Antimalarial medicines, with a 96% cure rate, are available. Yet far-flung clinics have a hard time keeping them in stock. Having adequate supplies when and where they are needed is critical, because the medication isn't fully effective unless patients take it within 24 hours of contracting malaria. Novartis, a company whose innovations include micro-chipped pills that can track whether patients take their medication on schedule, resolved the crisis in Tanzania by relying on, of all things, SMS text messaging.

Why SMS? When one innovates in poor, rural, underdeveloped, and remote areas, the most crucial considerations are not the "coolness" or "bleeding edge" of a technology but rather its usability and affordability. So, while ubiquitous Internet access might not be readily available, the much simpler SMS certainly is. Working with IBM and Vodaphone, Novartis came up with a simple idea: Have each remote clinic text four numbers, representing the inventory levels of four different, lifesaving medicines, to distribution facilities in major cities that ship supplies. The application is known as SMS for Life. Initial results of a pilot test at 20 sites across Tanzania were daunting: More than 25% of remote facilities were totally out of stock on all medications. Once Novartis had the data, they were able to reduce stock-outs to less than 1% in a very short time. The roll out across Tanzania was soon followed by a roll out in Kenya with further roll outs being planned for Cameroon and the Republic of Congo. Millions of lives have probably been saved with this simple yet effective innovation!
The Computerworld article discusses two other innovations as well - one dealing with increasing literacy with low cost yet fun literacy tools and another dealing with a business model for "micro financing" called "MicroGraam" in the rural villages of India to enable poor, mostly women, to earn a decent livelihood and live a life of dignity.

These are, however, just three examples from the hundreds of amazing stories at the ComputerWorld Honors Program, which is dedicated to honoring those who use technology to benefit society. Check out the stories above and many more at their website.

The Bottom Line - Innovation is not just about using emerging technology to create new and better gadgets but is also about leveraging simple technologies to benefit society especially for those who live in poverty in underdeveloped, rural, and remote areas and are deprived of even the most basic necessities of life.

Is "Innovation" too much of a Good Thing?

A recent article titled "You Call That Innovation" in the Wall Street Journal has sparked quite a bit of debate by claiming that the word "innovation" like many others such as "synergy" and "optimization" has outlived its usefulness. The article was quite ruthless in its assessment of the current state of affairs. "Companies are touting chief innovation officers, innovation teams, innovations strategies, and even innovation days. But that doesn't mean the companies are actually doing any innovating. Instead they are using the word to convey monumental change when the progress they're describing is quite ordinary."

I got a smile on my face when I saw two blog postings on HBR, side-by-side, each taking a different perspective on the views of the article. Bill Taylor, cofounder of Fast Company magazine and author of Practically Radical, seemed to agree with the article in his blog post Please, Can We All Just Stop "Innovating"? In his post, Bill asks whether it is time that we all stopped "innovating" and set our sights on something more meaningful and real. 

On the other hand, Scott Anthony, author of the The Little Black Book of Innovation, seems to take objection to the article calling innovation just another overused term in his blog post Innovation Is a Discipline, Not a Cliché. He agrees that while there is no doubt the term innovation has bankrupt some companies, the problem was not innovation itself but the fact it was never really understood clearly. To be honest, I think that is exactly the point the WSJ article is trying to make. After all, not all of us can be innovating all of the time, even we are Living in the Innovation Age!

An Innovation Lesson from a Chinese Bamboo Tree

I came across an interesting blog post by Emma Tiebens in which she shares a story told to her by a friend about the patience, diligence, and perseverance required in planting and caring for a Chinese bamboo tree.  To plant a Chinese Bamboo tree, you prepare the soil, pick the right spot, then plant the seed. You water it and wait… and wait… and wait… You continue to water it for an entire year and nothing appears. No bud, no sprout, nothing. Amazingly, this will continue for the next four years! Finally, in year five, one day you see a tiny green stub sticking out of the dirt. From that day on progress is fairly rapid and within six weeks the bamboo tree is over 80 feet tall!

Really? Did it really grow 80 feet in 6 weeks?

No… it grew 80 feet in five years!

The Bottom Line - Innovators should take inspiration from the above as they nurture their own "Chinese bamboo idea seeds." Remember Principle #2 from my book, Living in the Innovation Age, that "Innovation is a Journey not a Destination." Be patient as success might be just around the corner!

Who in Your Company Can Say "Yes" to Innovation, Without Permission? - Vijay Govindarajan and Mark Sebell - Harvard Business Review

An interesting blog post from Vijay Govindrajan and Mark Sebell on the disconnect between the people who would like to innovate and the people who can say "yes" to innovation without permission. Innovation has the best chance of success when these two groups of people are aligned, or better yet, one and the same!

Who in Your Company Can Say "Yes" to Innovation, Without Permission? - Vijay Govindarajan and Mark Sebell - Harvard Business Review

Innovation is a Team Sport

In my book, Living in the Innovation Age, one of the ways I discuss to make innovation work in your organization is recognizing that innovation is a team sport. I also discuss why the concept of "skunkworks" often fails to spur the innovation senior leaders had hoped for. As those of you who have been reading my blog posts might already know, I've been reading the "classics" on strategy and innovation in an attempt to better understand where we are today. One such book is Tom Peters and Robert Waterman's In Search of Excellence. They list a “bias for action” as the first of eight attributes that distinguish excellent and innovative companies from their peers. To promote such a bias they further advocate the creation of skunkworks organizations where creativity is embraced and action is encouraged.

But how can this be? Today, as I discuss in my book, we know that most skunkworks projects are doomed to fail even before they get started. So did Peters and Waterman miss the mark? The answer emerged as I delved deeper into the crux of the book. The real problem is not with the concept of a skunkworks as described by Peters and Waterman. Rather, the problem is that most organizations have completely butchered it into something that it was not meant to be. These companies have somehow equated skunkworks with R&D laboratory operations that produce papers and patents by the ton, but rarely new products. These companies are besieged by vast interlocking sets of committees that drive out creativity and block rather than promote action.

So, what did Peters and Waterman imply when they talked about a skunkworks task force? Here are a few guiding principles to help set you on the right path:

• Skunkworks task forces must be small – usually ten or less. 
• Skunkworks task forces must be of limited duration; they solve a problem and then disband.
• Membership should be voluntary. There’s nothing more likely to kill a project than having a task force filled with people who think it’s a waste of their time.
• The task force should be pulled together quickly, without a formal chartering process. Formal charters are a sure sign of bureaucracy setting in.
• Follow-up should be swift. If a task force can’t accomplish its goals in a reasonable period of time, it should be disbanded.
• Task forces should have no assigned staff. Permanent staff is another sign of the beginnings of bureaucratic sclerosis.
• The focus must be on outcomes rather than output (aka documentation, reports, white papers, etc.) In fact, documentation should be informal, and scant. Fifty-page reports tend to be written with an eye to showing how much energy has been expended; one-page summaries force the group to focus on conclusions and outcomes.

The Bottom Line - A properly designed skunkworks task force is not in contradiction to promoting innovation as a team sport because brings together the right people for a limited duration to time, encourages them to think creatively and outside the box, and promotes collaboration and action over process and bureaucracy.

Innovation - What's in an Org Chart? More than you might think...

In my recent book, Living in the Innovation Age, I talk about "rethinking workspace design" as one of the ways you can spur innovation in your organization. Most people will agree with what Franklin Becker once said about organizations and employees performing either better or worse because of the way their workspaces are planned, designed, and managed. Scott Adams has made a fortune by mocking bland, dreary, and bureaucratic workplaces in his Dilbert cartoons. It might actually be funnier if it weren't so true! As I explain in my book, one reason innovative companies succeed is because they realize the disconnect between how traditional organizations are designed and what is really required for innovation to occur. They realize that enabling collaborative workspaces internally, on campus grounds, and virtually can unlock areas for workers to be inspired, socially energized, and refreshed. Organizations such as P&G, Google, and Mattel have boldly redesigned their workspace to reflect their innovative culture. They realize that their workplace design is not only a means of demonstrating this culture, but also a way to breed and strengthen the execution and delivery of innovative ideas and their implementation.

But workspace design is only half of the equation with organization design being the other half. As Chris Trimble explains in his recent blog entry on HBR, To Innovate, Turn Your Pecking Order Upside Down, executing breakthrough innovation requires breakthrough organizational design. One example of this is rethinking hierarchy. As Trimble explains, when Electrolux, the European appliance maker, decided that it needed to push its product line up market, it created a special team in which market researchers and industrial designers were at the top of the pecking order instead of engineers. This decision was specifically made to overcome the company's inertial tendency to design high-reliability but dull and mid-priced products.

The Bottom Line - Innovation, by definition, deals with uncertainty. Dealing with certainty requires challenging the status quo, both in workspace design and organizational design. In other words, if you really want breakthrough innovation, you must be willing to break through the barriers to innovation that exist in your organization and workspace!

Reverse Innovation - Apple Beware?

I just finished reading Reverse Innovation by Vijay Govindrajan. As expected, the book is a fascinating read with numerous case studies. One point that came through loud and clear was that although the concept of reverse innovation is quite simple, implementing it with success is anything but. The traditional flow of innovations in our economy has been from the developed to the developing nations. Vijay calls this phenomenon "glocalization" in which companies take successful products that they have created for customers in their Western markets and modify them, most often by stripping off many of their features, for distribution all around the world at lower price points. And while glocalization has proved effective in reaching the top segments of the market in developing nations—buyers with needs and resources similar to those in the developed world, it has not proved to be an effective market penetration strategy. The reason - most growth opportunities in emerging markets are not at the top but in the middle market and below, where the gaps between customers’ needs and those of their developed-world counterparts are enormous. Reverse innovation promotes a new, bottom up approach that starts with the recognition that if you want to succeed in emerging markets, you must innovate for them. While success in ripe developing markets might be reason enough to embrace reverse innovation, there is more good news. Because the global economy is richly interconnected, innovations developed for emerging economies can be extended to the developed world. And as Vijay demonstrates with detailed case studies, such "extensions" generally occur in two phases - first in under served, niche areas of the developed markets and then "disruptively" in the mainstream markets.

Now, what was that about Apple?
Today I was reading an HBR blog entry that was talking about some of the problems Apple is facing with its hugely popular and successful iPhones in China. One critical problem is input. To date Apple's U.S.centric R&D efforts have failed to produce a Chinese-friendly input system. This is a serious problem, because texting is an integral part of Chinese life. As a workaround, Chinese iPhone owners jailbreak their phones and install third-party software that drastically simplifies the process. And then there is Siri - the most attractive new feature in the iPhone 4S. Well, Siri does not work in Chinese and even struggles in English if you have a strong Chinese accent.

So, in other words, Chinese users are cobbling together an iPhone experience from a variety of sources, and the overall experience is not very good. All of this is good news for Apple competitors Samsung, HTC, and Microsoft/Nokia. Chinese consumers are hungry for someone to develop an ecosystem that makes smart phones easy to use in their ecosystem/context/environment. Or maybe the winner will be a local player such as ZTE and Huawei. In any case, the winner will more than likely not be a company that develops its hardware, software, and the ecosystem from a U.S. perspective. (Hint - can anyone say reverse innovation?)

The Bottom Line - While Apple is the dominant force in the global smart-phone market today, that dominance could be very short-lived if Apple is not careful. It seems that Apple's leadership would be well advised to read Vijay Govindrajan's latest book on Reverse Innovation.

On Strategy, Innovation, and their Convergence

In the past month I have been reading books and articles on several different but related topics. First, I have been reading and trying to really understand Michael Porter's views on corporate strategy. Second, as some of you might know based on my recent blog entry, I just finished reading Peter Drucker's classic "Innovation and Entrepreneurship" that he had written way back in 1985. Finally, I have been studying what insightful people such as Walter Isaacson have been trying to teach us about the management and innovation lessons from the legendary late Steve Jobs.

Most of us are familiar with Porter's "five forces" theory on the analysis of industry structure, his seminal work in value chain analysis, and defining competitive advantage. His groundbreaking ideas have unfolded over three decades with some of his latest work being in ways to distinguish good strategy from bad. One of the five tests he advocates for testing the "goodness" of your strategy is taking an honest look at whether your strategy is based on trade-offs that are different from your rivals. Trade-offs are like forks in a road; you have to take one and you can never take both simultaneously. Peter Drucker might have put it as if you take one road, you would "selectively abandon" the other. Ultimately, however, trade-offs will help determine what you will not do, which is the true essence of what most people miss about strategy. Take a look at Microsoft Word. Over the years, Word has become more and more laden with features that most of us will simply never need nor use. It's interface has become more cluttered, more difficult to use, and the program itself is bloated consuming much more memory. It is a perfect example of a program that is trying to become everything for every user. In an attempt to please every user, it is actually pleasing no user. In other words, Microsoft Word has relaxed its trade-offs to offer a product for everyone and in essence has undermined its strategy and consequently its competitive advantage. On the other hand, consider the approach that Steve Jobs took after he returned to Apple in 1997. As Walter Isaacson explains, after weeks of dizzying product review sessions, Jobs had finally had enough. He cancelled all but four products focusing on two desktops and two portables; one each for regular and professional consumers. That's it. In Jobs' own words "deciding what not to do is as important as what to do." Years later, when Google co-founder, Larry Page, visited Jobs, he was given the same advice. Consequently, in January 2012, Page directed Google employees to focus on a limited set of priorities that includes Google+ and Android.

Porter also claims that capital markets and their drive to force companies to focus on a singular measure of shareholder value has been enormously destructive for strategy and value creation. It has led to companies becoming more similar to each other, which forces competition on price rather than uniqueness. Peter Drucker once said that the purpose of business is to create and keep a customer. It would seem that Drucker would agree with Porter that a singular focus on shareholder value is not the most productive way to run a business. Focusing on maximizing shareholder value encourages companies to take short-term actions to boost share prices and market capitalization. Apple's rise, subsequent near death downfall, and its amazing comeback is a case in point. As Walter Isaacson explains, when Jobs and his small team designed the original Mac in the early 1980s their focus was on their product and its positive impact on their target customers rather than on profit maximization or cost trade-offs. In the decade from 1983 to 1993 when John Sculley, a sales and marketing executive, took over Apple, their focus shifted to maximizing shareholder value. This focus proved toxic and Apple nearly collapsed. After Jobs' return, he re-shifted the focus back to creating an enduring company where people are motivated to create great products. By not focusing on shareholder value, Apple under the leadership of Jobs was able to define a clear strategy with differentiated trade-offs, which allowed it to focus on creating the right products for its customers, which in turn led to record profits. The irony of the whole story is that while the focus was never there, Apple is now the most valuable company in the world! That's the power of a good strategy and the lessons learned from the greats such as Porter, Drucker, and the late Jobs.

The $2000 Car... How about a $30 Cataract Operation, $100 Prosthetic Limb, and a $2000 Open Heart Surgery?

All that and much more is possible, says Vijay Govindrajan, one of management's top thinkers today. The key lies in a concept he calls "Reverse Innovation" in which innovation is driven from developing countries to the developed ones in contrast to the typical, and perhaps more intuitive, globalization model that drives innovation the other way around.

Check out his recent blog entry in HBR:
Health Care for 1% of the Cost - Vijay Govindarajan - Harvard Business Review

Additionally, his book on "Reverse Innovation" just got published and is available, among other places, on Amazon at http://www.amazon.com/Reverse-Innovation-Create-From-Everywhere/dp/1422157644.

Round "AOL" Goes to Microsoft...

One of today's top stories was Microsoft's winning bid of just over $1 billion for 800 AOL patents related to advertising, search, e-commerce, and mobile commerce. Reports indicate that the sale includes technology rights from numerous AOL businesses, ranging from Netscape, ICQ and MapQuest to CompuServe, Advertising.com and others.

The AOL deal is the largest known patent auctions to date at roughly $1.3 million per issued patent. That is noticeably higher than the bankrupt Nortel Networks patent "blowout" auction last year of 6000 patents at $4.5 billion, or roughly $1.05 million per patent.

MSN Money has an excellent article that covers the story. 

The Bottom Line - As I discuss in my recent book, Living in the Innovation Age, technology companies such as Apple, Google, and Microsoft have frantically been snapping up patents to strengthen both their competitive and legal positions and in the process they've been bidding up the prices of these coveted patent portfolios.

Apple's "Legal Side of Innovation"

The April 2- April 8, 2012 issue of Bloomberg Businessweek has done a fantastic job of outlining Apple's war of Google's Android OS and the makers of mobile devices that use it such as those from HTC, Motorola Mobility, and even long-time business partner Samsung!

The following graphic shows just how much of a tangled web the numerous lawsuits by Apple and counter suits from those being sued have become.

Source: Bloomberg Businessweek

Click here to read the full article on Businessweek. I highly recommend it.

The Bottom Line -  "The Legal Side of Innovation" is a concept that I describe in my recent book, Living in the Innovation Age, in which companies are increasingly using patents and other IP as a way of attacking each other in highly innovative and competitive areas such as smartphones and tablets. As the article illustrates, so far companies have spent over $400 million on legal fees suing and counter suing each other over patent infringements. What's the ROI on that? More than likely, a BIG FAT ZERO. 

Creative Imitation at Work

In my previous blog post, I discussed a concept called "Creative Imitation" introduced by Peter Drucker in his book “Innovation and Entrepreneurship” back in 1985. It's similar to a concept that I call “First Mover Advantage Fallacy” in which I talk about how contrary to popular belief successful innovators don’t always have to be first to market. Often times these first movers are overtaken by copycats who either learn from the first mover’s mistakes and missteps and/or from the naturally evolving maturity of the market in general. (And yes, I came up with the concept independently :)).

Pinning the Creative Imitator
In March 2011, Apple sued Samsung claiming that latter slavishly copied the look, feel, and even packaging of the iPhone and the iPad. Of course, Samsung, while admitting a few look and feel similarities, vehemently denied any flagrant violation of patents, and like any plaintiff worth their salt, counter sued Apple with its own claims. The fact that Samsung might have "creatively imitated" Apple's designs should come as no surprise since many of South Korea's family controlled conglomerates, also called chaebols, have been widely recognized as "congenital imitators" of many things  - cars, electronics, kitchen appliances, and much more.

The Creative Imitator Strike Back...
Whether or not Samsung infringed on any Apple IP is for the courts to decide. The more interesting point is that as Peter Drucker mentioned, and as I did in my discussion of the “First Mover Advantage Fallacy,” sometimes the best "creative imitators" overtake their "first mover" counterparts. At least that's what Samsung might be hoping for with its new  phone/tablet Galaxy Note "phablet" device. The Galaxy Note might look like a piece of toast or a throwback to the 1980s-style brick phone. Yet, Samsung has sold 5 million units in the past quarter and expects to sell at least 10 million Notes devices this year. More than a freak hit, consumer and design experts believe the surprise success of the "phablet" might signify a deeper shift in the fast-paced world of mobile devices. The most obvious thing about the Note is its size with a 5.3 inch screen that is almost as wide as the iPhone's screen is long. The Galaxy Note has also taken a bold step in reintroducing consumers to the stylus, which Apple's co-founder, the late Steve Jobs, famously ridiculed as one of the most non-intuitive ways to interact with a screen.

The Bottom Line - Could Samsung have successfully cracked open the 5-inch device market, where Apple has yet to venture and Dell failed miserably a couple of years ago? Are we about to witness yet another instance of a creative imitator overtaking  the original imitator? Could Apple face the same fate in the iPhone/iPad market with Samsung as it did in the PC market with IBM several decades ago? Only time will tell...

Innovation Déjà vu – Insights from Peter Drucker that hold true even today.

Over the past few years I have read many books on the subject of Innovation. I have even written my own book titled “Living in theInnovation Age” and have spoken on the topic at several conferences and professional events. One book to which I had not given adequate justice was “Innovation and Entrepreneurship” by the legendary Peter Drucker. Well, I spent this weekend (March 31-April 1, 2012) reading it from cover to cover. All I can say is that the man is a genius! No wonder he was awarded the Presidential Medal of Freedom in 2002 and is considered the Father of Modern Management.

To be honest, I had fairly high expectations of the book to begin with. After all, who hasn’t heard of Peter Drucker, the author of over 35 well-known and best-selling books on a wide array of subjects from management to executive leadership to today’s concept of endearment – innovation? But as I read through the pages, I was amazed by the clarity and depth of his insight on the topic of innovation almost 27 years ago (in 1985). In fact, as I read through the book, I was astounded by just how many modern “innovation concepts” are actually rooted in his insights including two of the most popular theories that form the basis of our understanding of innovation today; namely “Disruptive Innovation” and the “Three-Box Model.”

Disruptive Innovation

The terms disruptive technology and its successor disruptive innovation have made the man who coined these terms, Clayton Christensen, a well-recognized personality in the field of innovation. Disruptive innovation refers to innovation that begins its life in relatively simple applications at the bottom of a market and then relentlessly moves upstream until it gradually usurps the established leaders in that market. A classic example that Christensen has often used is that of how steel mini mills have “disrupted” the established, vertically integrated, huge steel mills of the 1960s and 70s.

It turns out that while Christenson coined a very catchy term for the phenomenon, he was not the first to recognize its existence. In fact, Peter Drucker talks about the exact same phenomenon in his book in at least two places. First in chapter two he recognizes that while most innovations exploit a change that has already occurred or is happening, there are some innovations that in themselves constitute a major change. In other words, these latter innovations are disruptive (he does not use this term). Then in chapter 17, he talks about the concept of “Entrepreneurial Judo,” which is identical to our modern concept of “Disruptive Innovation.” One example, he gives, is how Sony moved into the low end of the radio market with cheap, small, and reliable “transistor” radios. The existing market leaders ignored Sony as it was selling to a low profit segment that they did not care about anyway. Once Sony had established itself in the lower end market, it kept moving into other market segments until it completely displaced the market leaders of the time. Isn’t this exactly similar to disruptive innovations stories you might have heard from Christensen? Entrepreneurial Judo aims at establishing a beachhead, one that established competitors will either not defend at all or only defend half-heartedly. From there, these newcomers gradually take over the whole beach and ultimately the entire island! Once again, we now know this theory as disruptive innovation – a catchier name for a recycled concept!

The Three-Box Model

Vijay Govindrajan’s three box model seems so obvious once you read it. To summarize, successful enterprises have mastered three specific practices – managing the present (Box 1), selectively forgetting the past (Box 2), and creating the future (Box 3). While Vijay deserves much credit for popularizing the model with a simple, yet perceptive framework, the credit for the origins of the theory goes, once again, to Peter Drucker. In chapter 12, Peter Drucker identifies that “it takes special effort for existing businesses to become entrepreneurial and innovative... the temptation is always to feed yesterday and to starve tomorrow.” Therein lays the origins of the three box model where organizations are not designed for innovation but rather for efficiencies and the resulting underpinning for the classic catch-22 between Boxes 1 and 3 with too much attention on managing the present and not enough on creating the future. Chapter 12 further explains Box 2 with a description of a process Peter Drucker calls “Selective Abandonment,” in which every three years or so, the enterprise must put product, process, technology, market, channel, and staff activity on trial for its life. The organization must ask, “Would we now go into this market, product, channel, technology, etc. today? If not, the next question becomes, “How do we stop wasting resources on it?” Selective abandonment not only helps free valuable resources for the “new” but helps an enterprise relieve itself of the burden of “near misses” and “half successes.”

Living in the Innovation Age

Besides the two examples I described above, there are many other popular concepts about innovation today that I found to have origins in Drucker’s book. These include the concepts of “understanding the true job of customers”, “accidental innovations”, and “the importance of an innovation strategy” (which he calls an innovation plan). Interestingly, while he never mentions the word “culture” he does discuss the importance of a foundational framework of policies, practices, and structures, which essentially is what we now know as an organization’s culture.  

As I read his book, I was overcome by a natural curiosity to explore more about how my ideas, and more importantly, my recent book matched up with his ideas and writings. I was delighted to see that Part 2 of my book mapped very neatly to his chapter 11, Principles of Innovation.  A key difference, of course is that while his discussion about the principles in chapter 11 is just eight pages of “Do’s” and “Don’ts,” my book covers the topic in much more detail with close to 60 pages devoted to discussing five core principles that can help lead to a more disciplined mindset for innovation

Not surprisingly, I also found the origins of several concepts that I discuss in my book in Peter Drucker’s book. The one that intrigued me the most was a concept that I call “First Mover Advantage Fallacy” in which I talk about how contrary to popular belief successful innovators don’t always have to be first to market. Often times these first movers are overtaken by copycats who learn from the first mover’s mistakes and missteps. Well, this is very similar to what Drucker called “Creative Imitation” in chapter 17 of his book. One example he provides is how IBM has practiced creative imitation throughout its history starting back in the 1940s when it abandoned its own computer design in favor of rival ENIAC and then later again as it  took over the PC marker from Apple.  

The Bottom Line - Peter Drucker’s book, “Innovation andEntrepreneurship,” is truly a must read for any student or practitioner of innovation. Of course, if you would like to learn more about the “principles for innovation,” I would highly recommend a more recent addition to the knowledge body of innovation, namely my book “Living in the Innovation Age.”  J

The Perils of "Innovation Cousins Kissing Each Other"

I just read an excellent post on HBR by Scott Anthony titled "Stop Innovation Inbreeding," in which he equates the long-term harm caused by the "introverted innovation efforts by most organizations to the pairing of harmful recessive genes that occurs with recurrent inbreeding within living species." Basically, innovation inbreeding endangers the long-term survival of innovation within an organization by recycling the same ideas from the same people with the same background. And just as harmful recessive genes eventually get paired in inbreeding among living organisms, so too do the worst ideas get touted as innovative in  organizational innovation inbreeding.

His three recommendations to avoid this are quite simple:

1. Ensure that a healthy cross pollination of ideas occurs within your organization by forcing new internal connections. An example that he provides is IBM's "idea jams" that bring together thousands of disconnected employees, outside experts, and even external friends and family.
2. Leverage external ideas even it means hiring new talent.
3. Involve customers to ensure that you are really helping them with their ultimate "job" of whatever it is they are trying to accomplish with your product or service.  

Not surprisingly, and to my delight of course, these suggestions map perfectly to portions of my recent book, Living in the Innovation Age. 

Take, for example, the first suggestion. Chapter 8, "Leveraging the Medici Effect", is all about ensuring that an organization prevents "silo innovation" by ensuring diversity of workforce, diversity of ideas, and promoting a culture of strong collaboration among employees with different backgrounds. 

Suggestion #2 is neatly captured as part of Principle #4 (Chapter 5) that states that "Innovation Seeks to be Free." This is where I discuss the importance of unconstrained innovation techniques such as crowdsourcing and open innovation. 

Finally, I not only discuss the importance of focusing on the "true job" of the customer but the often overlooked perils of "too much involvement" as well in my discussion of the "Customer Centric Paradox" in Chapter 1.

The Bottom Line - Innovation inbreeding is harmful to an organization's long-term survival. Following the above simple suggestions, however, can go a long way is ensuring that "innovation cousins" in your organizations don't end up kissing each other! :)

Innovation - It takes a "Culture"

This past Sunday, my 4+ hour plane ride to the Gartner CIO Leadership Forum in Phoenix, AZ, gave me the chance to catch up on some of my long overdue reading. One item on that list was the Winter 2011 edition of the Strategy+Business publication by Booz & Company. The highlight of that issue is "The Global Innovation 1000 - Why Culture is Key." Those of you familiar with my recent book, Living in the Innovation Age, might recognize just why I had to read this article... Chapter Seven of my book says pretty much the same thing; it's about the importance of "instilling a culture of innovation" within your organization.  

As I read  through the article, I couldn't help but completely agree with the message it was communicating very loud and clear - Successful innovation requires two key alignments: an Innovation Strategy that is aligned with the overall Corporate Strategy and an organizational culture that is aligned with the Innovation Strategy. Of course, this assumes that you even have an Innovation Strategy. Based on the authors' research, nearly 20% of the companies surveyed did not have an Innovation Strategy at all! Research has shown that a key reason why companies flounder at innovation is not because of a lack of quality ideas but an inadequate structure to follow through on the idea with the resources and commitment to implementation. A proper Innovation strategy fills that void by defining the principles, policies, procedures, and implementation structures to help get ideas through from an abstract concept to a concrete implementation.

As expected, the research showed no statistically significant relationship between the size of "R&D budgets" and the success of innovation efforts with only one top 20 spender, Roche Holding, claiming a spot on the top 20 innovators list.

The author's research reveals that companies who get the necessary alignment between their Innovation Strategy and Cultures are in for a treat with 30% higher Enterprise Value growth and 17% higher Profit growth than their peers with a low degree of alignment or a missing Innovation Strategy.

The research also revealed that successful innovators followed a fairly similar approach - connect with the customer, understand their true needs, and then determine which existing services and products could be leveraged to solve the customer's problem in a unique, proprietary, and sustainable way.

The Bottom Line - Innovation requires a strong alignment between a robust, well-grounded Innovation Strategy and the organizational culture. This alignment not only supports innovation but accelerates its execution and is ultimately the responsibility of the top leaders of the company. To gain traction, the alignment must be actualized with a tangible action plan clearly linked to a short list of focused, core capabilities (current or to be developed) that will differentiate you in the market.

Interested in learning more about spurring innovation in your organization? Part 3 of my book goes into quite a bit of detail on this topic with Chapter 7 dedicated to instilling a culture of innovation and a sound Innovation Strategy.

A Mixed Bag of Innovation Items...

It's been a hectic two weeks but I am finally back. Rather than focusing on one particular item as I normally do in my blog entries, this time I am going to enumerate a few articles/blogs of interest:

The $2,000 Car, an HBR blog entry by Vijay Govindrajan talks about how innovations such as the Tata's $2000 "Nano" car, Logitech's $20 mouse, and Deere & Company's 35-horsepower tractor called the "Krish" are all sources for "upstream innovation" in more developed markets such as those in the U.S. and Western Europe. This trend, which is he calls "Reverse Innovation" is a prime example of Principle #3 of my book of "going where no man has gone before."

Look to IT for Process Innovation?, an HBR blog entry by Brad Power talks about how many of the developments within the depths of your IT organization such as "Agile Development" can be the source of far reaching business process improvements across the entirety of your organization. An interesting companion blog entry to read in conjunction with my chapter on Principle #5 "Innovation Has Many Forms."

Google Grows Up: A Necessary Evil?, an HBR blog entry by Joshua Gans talks about how Google's focus is shifting from being "all about the technology" to one of "core products." I talk about Google quite a bit in my book as a model for ensuring that "Innovation is Seen as a Journey as opposed to a Destination" (Principle #2). But alas, is Google growing up into yet another bureaucratic organization? Are the days of Google hiring smart people and empowering them to invent the future gone? Wasn't Google supposed to be different? Read this interesting blog entry to find out more.

Why IT says no to innovation, is an interesting blog entry by Jefferey Phillips in which he explains why IT has a bad rap for often saying "no" to seemingly groundbreaking and obvious ideas. He claims that not only do most people who run enabling functions, like regulatory, legal and IT, want to say yes to your ideas; they want to be more innovative themselves! But, if they aren't aware of your idea early, if they aren't funded to support new ideas, if their resources are stripped back to only support maintenance, they have no choice but to say "no". This lines up perfectly with my discussion in my book about "Making Innovation a Team Sport" and why "skunk works" initiatives often fall flat on their face.

Finally, an interesting article by Cheryl Perkins titled "China offers new approaches to innovation" in PostCrescent.com. Cheryl discusses her recent trip to Shanghai China where she and her colleague Pat Clusman talked about innovation with Chinese companies, multinational organizations and government agencies at the China Institute for Innovation. An interesting contrast to another article I just read in the March19-March 25, 2012 issue of BusinessWeek titled "Hey China! Stop Stealing Our Stuff" that does an excellent job of pulling together many different intellectual espionage stories involving China and the resulting "transfer of wealth" from U.S. to China. 

I hope you enjoy these blog entries and articles...