Monday, January 26, 2004

Bird Strategy

The birds compete for the pieces of cracker thrown upon the ground by the Asian family next to me. The pigeons try unsuccessfully to eat the cracker bits. Too big to swallow whole and too tough for their beaks to crack, they pick them up, shake them, and toss them to the ground. Strutting from crumb to crumb, their pretense is haughty, but their actions are pathetic.

A sparrow joins the assemblage. Darting quickly among the slow-moving pigeons, the sparrow deftly seizes the cracker pieces, and with its small sharp beak at one of the corners or along the edges, it breaks the cracker into the small pieces it can eat. In an instant, one cracker piece is disposed of, and the sparrow moves on to the other pieces the pigeons still toss around with no effect. The sparrow with its speed, small beak, and strategy is eating the pigeons' lunch.

The pigeons notice that there are a few crumbs left by the sparrow as it broke the cracker pieces apart. With typical bobbing head motions, the pigeons deftly finish off what the sparrow has left.

A western jay, smaller than the pigeons but bigger than the sparrow and very aggressive, streaks in from nowhere, picks up one of the large pieces, and flies elsewhere to eat. Momentarily, the intruder has disrupted the scenario. But, quickly, the sparrow and pigeons resume their roles.

Leadership in a market does not necessarily mean that you have the largest market share, or

have the highest revenue, although those may follow. Leadership in a market means establishing the "rules of the game" by which competition is "played." Sometimes, it means establishing the shape and size of the playing field.

The crumbs have been thrown upon the ground. The pigeons are only good for cleaning up. The sparrows have been able to develop niche markets, fragmenting and further defining the markets so that they can be attacked.

But, beware the western jays that have also seen the opportunity and are swooping in to take the prizes home.

Who will define your market?

Paul Schumann

Tuesday, January 20, 2004

Regarding Apples and Oranges on the Topic of Innovation

">'Is there such thing as 'heedless reverence for innovation'?

Chuck Frey at Innovation Tools has provided an excellent review (12/19/03) of Carleen Hawn's article profiling Apple Computer in the December 2003 issue of Fast Company.

Apple's obsession with breakthrough product innovations has led to several product failures and less than stellar market share in their other more successful product lines. Hawn, reviewing Apple, Xerox and Polaroid as examples concludes that not all innovation is beneficial to organizations: "With such examples as Apple in mind a number of skeptics are beginning to ask whether our heedless reverence for innovation is blinding us to its limits, misuse and risk." The article goes on to point out that process and business model innovations have recently produced greater success in the market in some industries.

Innovation has two dimensions -- class and nature. Class is an indicator of the significance of the change -- incremental, distinctive and breakthrough. Nature is an indicator of the where the innovation emanates -- product, process and procedure. The combination of these two dimensions creates a matrix of nine different kinds of innovation. For a given organization, a unique pattern of innovation meets customer needs and provides competitive differentiation. This pattern of innovation also determines the company's profitability and ultimately shareholder value. A business model is a specific pattern of innovation (e.g., class/nature). And, this pattern of innovation is time sensitive. An innovation pattern that is successful today may not be successful tomorrow.

Dell's business model has a small component of product innovation (incremental and distinctive) and a large component of process and procedure innovation (distinctive and breakthrough). On the other hand Apple's business model is largely breakthrough product innovation with little emphasis on process or procedural innovation. Both business models have a role to play in the industry.

If everyone focused on the same kind of business models where would the great new breakthrough products come from? You can no more force Apple to become a Dell (remember they tried!), than force Dell to become an Apple (they did think about it, but backed away). Both are successful innovators in their own way.

Organizations that consistently produce breakthrough innovations provide a useful service to their industry and society. Why must they be criticized and maligned doing what they do?

We are wrongly measuring everything by economic value add, when we don't have any real clue as to what the real value is to a breakthrough product innovation until it has been around a long while. The real issue is how to reward businesses for coming up with the next breakthrough product innovation.

Click here to read Chuck Frey's review

Click here to read Carleen Hawn's article

Paul Schumann & Donna Prestwood


Monday, January 12, 2004

Organizational Beliefs

"IBM sent a holiday chill through its U.S. employees with plans to ship thousands of high-paying white-collar jobs overseas to lower-paid foreign workers."

Bob Herbert, The New York Times

Herbert reports that people in IBM are upset and angry. "They (IBM) acknowledged the danger of political backlash, but said it was essential to step up the practice. 'Our competitors are doing it, and we have to do it,' said Tom Lynch, IBM's director for global employee relations."

"Referring to employees who may be affected by the plans, he (an IBM spokesman) said, 'We deal with them as they need to know.' "

"Mention IBM and the image of a solid corporation comes to mind - a technology pioneer that forged a special bond with its employees who proudly declared themselves 'True Blue'. In the 1970s and 1980s, many of these employees who worked in the so-called 'clean rooms', where they built microchips and hard drives. These were boom times for IBM. Clean rooms ran round the clock, feeding the demands of the computer revolution. But, a few years ago, some clean room veterans noticed that colleagues were coming down with cancers - rare cancers - at surprisingly early ages. One IBM team had a cancer rate of 80 percent. At about the same time, some children born to IBM families were delivered with terrible birth defects. IBM declined an interview with 60 Minutes II. But some IBM workers say that the company's clean rooms were a dirty secret. And what shocks them even more is just how much Big Blue knew."

60 Minutes II

60 Minutes II

"This, then is my thesis: I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the single most important factor in corporate success is faithful adherence to those beliefs. And, finally, I believe that if an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life."

Thomas Watson, Jr.

A Business and its Beliefs

And, what were those beliefs delineated by Thomas Watson, Jr., son of IBM's founder and then Chairman of IBM?

1. Respect for the individual

2. Best possible customer service

3. Superior performance from individuals

I know that these beliefs are long gone from the IBM culture, but I have never had that point driven home to me more that the two articles quoted above. The IBM spokesman quoted in Herbert's article showed a real disrespect to IBM employees who may be affected by IBM's decisions. And, whether IBM knew about the cancer risks without telling its employees or not, the very fact that even the suggestion has surfaced is a clear indication how far IBM has moved from the original belief system.

Watson was writing in 1963, about 48 years after the formation of the company. He remained optimistic, "IBM is still very much the same company it has always been and we intend it shall always be. For while everything else has altered, our beliefs remain unchanged."

Paul Schumann


Wednesday, January 7, 2004

Focusing Innovation Programs

Business history is replete with examples of organizations that have expended tremendous efforts on innovation programs that when brought to fruition had little direct value in the marketplace. The failure of Polaroid's "instant movie camera" in competition with video cameras, the limited success of Kodak's disc camera when it had to compete with improved electronic 35mm photography, the ill-fated venture of Exxon into the world of office machines, and Xerox's office automation system illustrate the fact that poorly conceived innovation projects lead to poor results. In fact, the improper focusing of innovation programs can be almost as dangerous to an organization as a "sit still" innovation policy.

Polaroid's instant movie camera was an incorrect response to a correctly understood customer need. Where Polaroid failed was in letting the response be driven by internal capability and not understanding competitive response and technological capability. Since they had instant film technology, it was natural for them to build on it. However, video technology was improving too quickly, and the window of opportunity closed before Polaroid could improve instant movie film technology to the point of customer acceptability.

The failure of Kodak's disc camera was slightly different. Again, the market demand for simple, quality photographs was understood. The failure was in the strategy Kodak chose to take advantage of the opportunity. Kodak's primary business is film. Through the disc camera, they were attempting to develop proprietary film technology that would give them an advantage over competitors like Fuji. They also failed to understand the impact of the integration of electronic circuitry onto chips. This made the automatic 35mm camera a reality, bringing a higher-quality image to the mass market.

Exxon's mid-1970s venture into word processors was doomed by a failure in the understanding of the technology. Exxon correctly identified office automation as a significant opportunity. Also, they correctly understood that they shouldn't attempt to develop a product internally. In purchasing Vydec, they misjudged how fast the technology was going to move and what it would take to stay in the game. In addition, the culture of a petroleum company and that of a word processor company are and need to be vastly different. The cultures were too different for the venture to last.

Xerox's first office automation system effort was based on a misjudgment of the time frame of the opportunity. They correctly understood that office automation was a significant opportunity, but they misjudged how fast the opportunity was going to develop. They became technology and innovation driven. They wanted to be advanced and different. As a result, their concepts and technologies were years ahead of the market; many are now being utilized by successful companies.

On the other hand, many organizations have better understood the overall market and the environmental driving forces and have succeeded by targeting their innovative efforts more effectively. The development of aspartame by the NutraSweet Company, of the Walkman by Sony, and of a truly laptop computer by Compaq illustrate how product innovations can be successful. The commitment of Motorola, Black & Decker, and Ford to improved production processes has provided each with markedly enhanced competitive positions, while the skyrocketing growth of Dell Computers and Wal-Mart shows that new procedural approaches can also produce impressive results.

The point is that innovation effort is valuable if it is properly targeted. Contrary to the emerging opinion that incremental innovation in manufacturing processes is a panacea for all industries, the truth is that there is no innovation strategy that is appropriate for all companies in all situations. What is needed is a method for effectively analyzing the overall environment in which an organization operates, and for developing an innovation program that matches the needs of the customers, the realities of technological progress, the impact of competition, the desires of stakeholders and the capabilities & capacities of the organization.

Innovation in products and services, in processes and in operational procedures is essential to the success of any organization. Whether the innovation is incremental, distinctive, or breakthrough should be determined by the future needs of the market. Effective targeting must include analysis of developing customer needs, emerging technologies, the total competitive environment, internal capabilities, and basic organizational goals. An efficient organization has both formal and informal mechanisms to properly align these elements and convert the analyses into productive innovation programs.

Paul Schumann & Donna Prestwood