 Commentary by Cass Pursell Subscribe via Email or RSS |  Biography |
July 31, 2008
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| Posted by Cass Pursell at 5:17 pm | ||
I'm new to working in Supply Chain and am finding it extremely interesting, challenging, and critical to the long-term success of the organization. One thing that I've noticed in particular is that, more than for any other business function, logistics conditions around the world are hugely variable and can be rather brutal. What seems to happen in most cases is that the difficult conditions lead inevitably to creative logistics solutions. This observation corroborates one of my favorite pet innovation theses: that a lack of resources can actually lead to innovation.
A few examples of this phenomenon from around the world:
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Comment [66] | Permalink |
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| Categories: General | ||
May 24, 2008
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| Posted by Cass Pursell at 1:02 pm | ||
| (Or, Your metrics don't go with those shoes) I've argued in the past that creating and driving innovation shouldn't be the goal, but that creating and driving sustainable growth should be. The problem with that position is, though, that not all growth is healthy or advisable. Therefore, I'd like to take the opportunity to amend my argument; let's say that the new goal should be driving sustainable, appropriately targeted, growth. Appropriately targeted growth is any growth that moves us toward the realization of a long term and (wait for it), yes, socially responsible strategic goal. Maximizing production through innovation is a long term strategic goal, but it's also childish in its simplicity. Goals like that have more than once led us into a long dark alley that, with each step, further restricts our available set of choices and can ultimately lead us into a metaphorical kill-or-be-killed situation. We get into situations like these because we don't take the time and expend the energy to develop mature, comprehensive, strategic goals. I re-present to you, ladies and gentlemen, Mr. Earl Butz. In the early 1970s, a huge shipment of American grain to Russia and a coinciding drought in the Midwest caused a shortage, boosting farm prices to historic heights. Things got bad enough that the issue became politicized and President Nixon felt the pressure to act. Here enters Butz, who was handed a mandate to get prices down no matter what it took. The strategic goal, then, was simplistic: reduce the price of food. To meet that goal, Butz got innovative, and in 1973, a new farm law, the Agricultural and Consumer Protection Act, introduced the concept of target price subsidies. And it worked quite well. Farm size increased exponentially. Larger farms could produce larger yields, and Butz innovated hard on this front to change the landscape of the American farm economy. He instructed farmers to think of themselves as businessmen, to plant corn "fencerow to fencerow," to "get big or get out," and to "adapt or die." Butz was not at all worried about the drop in prices a surplus of corn would cause; in fact, that was his goal. To keep farmers happy, he created the "direct payments" system. Farmers grew as much corn as they could and then sold it on the market for a price that had dropped far below the cost of production, with the difference made up by the before-mentioned subsidies. The system was economically irrational but was on-point (and therefore successful) in terms of the strategic goal. In his time heading the USDA, Butz revolutionized federal agricultural policy and re-engineered many New Deal era farm support programs. By any definition, Butz was an innovator, and he used his innovation skills to further his organization's strategic goal. But was that a good thing? The problem is, processes are stupid. They don't think for themselves, and they produce only what they are designed to produce. If you start with a simplistic strategic goal, your processes that are designed in support of that goal will go about the business of meeting that goal, and only that goal. Taking the time to think through all of the factors that are important to the customer before setting the strategy is critical. Do we want low food prices? Sure we do. But do we only want low food prices? Since Butz, cheap corn product (along with soybean oil) has made processed food dirt cheap. In fact, a researcher from the University of Wisconsin found that with one dollar he could buy 1200 calories of cookies and potato chips but only 250 calories of carrots. For drinks he could buy 875 calories of soda but only 170 calories of orange juice. So yes, we have low food prices; the innovated farm policy effectively (and I have to believe, unintentionally) made the least nutritious food the cheapest food, which brings up serious social justice issues. As Michael Pollan says: "A public-health researcher from Mars might legitimately wonder why a nation faced with what its surgeon general has called "an epidemic" of obesity would at the same time be in the business of subsidizing the production of high-fructose corn syrup." We've entered into one of those long, dark alleys, where our set of choices has effectively shrunk. To answer Pollan's rhetorical question, we're in that business because we set a simplistic strategic goal: lower prices. Any well-functioning organization will be able to move in the direction of its strategic goals. People are smart, and people are innovative; they'll take you where you want to go. So why not go someplace nice? Don't just blurt out "lower food prices" and put the machine into motion. Say, "lower food prices, optimize nutritional value, ensure sustainability, etc.," and create smart metrics that can measure your progress, then stand back a marvel at how good innovation in the service of sustainable, appropriately targeted, growth can look. | ||
Comment [23] | Permalink |
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| Categories: General | ||
March 31, 2008
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| Posted by Cass Pursell at 10:35 am | ||
| Think of the most innovative companies in the world. Better yet, pick one. Focus on it. Get it firmly in mind. How much of that company's annual revenue is represented by new products? If it's a young company you're thinking of, that percentage may be quite large. If it is an established company, however, it's likely that the percentage of revenue represented by new products has gotten smaller each year. Even in companies where new products still represent 40% of revenue each year, that leaves 60% that is represented by existing product lines. Sixty-percent of revenues, conservatively, that stand outside of the innovation intentions of organizations which have not employed a systematic process innovation strategy. I've argued recently that the goal of an innovation program should be to assist in creating and driving sustainable growth. If we can agree on that as a goal, then I would further argue that process innovation is the most important innovation strategy of all in terms of sustaining growth and creating value. If product innovation strategies are the engines that drive an organization up a steep growth curve, then process innovation strategies are the brakes that prevent the organization from slipping back down. Companies that employ systematic process innovation strategies have focused on improving the speed, reducing the cost, and enhancing the quality of the processes that support the delivery of their products or services. If they have been successful in implementing this kind of strategy, then this approach is built-in to their organizational cultures. Process innovation strategies are so powerful because the resulting competitive advantage lasts longer than the competitive advantage derived from product or service innovation, which competitors are relatively quick to copy. Process innovations are comparatively difficult for competitors to duplicate, and are therefore arguably more disruptive than a new product or service. For an easy case-study, look at what happened to the automotive industry when Japanese manufacturers innovated their production processes - the then-dominant Big Three US car makers were caught flat-footed, and were not able to replicate the process innovations for nearly three decades, causing a complete realignment within the market. Here's a little thought experiment that can act as an acid test that anyone can take when comparing product innovation strategy to process innovation strategy. If Warren Buffet were to present you with a choice between two stock portfolios, one consisting exclusively of companies focusing on product innovation, and the other consisting exclusively of companies focusing on process innovation, which would you choose? It's not an easy decision, and that in itself speaks volumes. | ||
Comment [130] | Permalink |
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| Categories: Strategy | ||
March 28, 2008
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| Posted by Cass Pursell at 2:21 pm | ||
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I've been reading a lot about how government can and should stimulate innovation, particularly in relationship to the emerging economies in India and China. The consensus seems to be that innovation flourishes in areas that are particularly free of government regulation, which makes a certain degree of sense; if you free up the market to allow problems to be approached creatively and remove start-up barriers to allow companies to be cheaply and easily established, you should see more innovative companies entering the market. There is a widely accepted inverse correlation, in fact, between bureaucracy and innovation (in places with a lot of bureaucracy you see relatively little innovation going on). So there's a lot to be said for creating markets where government regulators have largely butted out. However. However. As a proud quality geek, I have long since bought into the notion that keeping an eye on things is by-and-large a smart thing to do. Stay out of the way as much as possible, yes, but never allow yourself to be convinced that an ability to measure, track, trend, and analyze is intrusive and restrictive. Count this, then, as an argument in favor of creating easily accessed markets (very low hurdles for new companies to enter the market) and rigorous review and regulation of new product offerings (no products should be widely dispersed that aren't understood in detail by a regulating body). It's true that companies and even economies as large as the United States' can be turbocharged by unregulated or lightly regulated products or markets. But inevitably, this growth is short-lived and comes at a very high cost. Consequences of unstructured, unregulated markets are easy to find these days. The Enron debacle occurred in large part because regulators took their collective eyes off the ball. The credit crisis that is now hobbling the world economy is in part the result of unfettered innovation in the financial services market, as the industry combined computing power and leverage to create a burst of innovation and new products that were so complex as to defy the easy understanding of even economists at the Fed. My general opinion is that unfettered growth is unsustainable and, in the end, makes a handful of people rich at the expense of the broader society. As part of the innovation conversation, we would do well to remember that creating and driving innovation isn't the goal. Creating and driving sustainable growth is the goal, and innovation is a potentially powerful tool we can use to accomplish that goal. By making that distinction, we can better resist the urge to advocate the tearing down of reasonable market oversight structures in order to drive bigger, faster, and better innovation. |
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Comment [5] | Permalink |
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| Categories: General | ||
February 29, 2008
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| Posted by Cass Pursell at 3:20 pm | ||
| Is innovation mutually exclusive with continuous improvement? "Incrementalism is innovation's worst enemy!" Sam Walton has declared. "We don't want continuous improvement, we want radical change." Large, established firms seem to find it much easier to focus on incremental improvement than to embrace change of any kind, let alone radical change. I wonder if there is a psychology of success that makes it more difficult to take significant risk; it's logical to assume that the more you have to lose, the less likely you are to take risks. It would explain why many large organizations focus on developing continuous improvement programs for their core business and attempt to buy innovation either by creating stand-alone innovation "towers" or by acquiring start-up companies. Many executives believe that the "normal" culture of their firms are toxic to innovation, and physically separate their innovation programs from the rest of the organization. Approaches like this explain why it is difficult for many firms to get a handle on the benefit they can expect from a given dollar of innovation spend. The innovation parts of their businesses are not designed to be measured, for fear of choking off good ideas. Google's chief executive is a champion of this mindset, and has even said that innovation is "anti-six sigma," in that he feels that variance in the innovation process is at least somewhat desirable. On the other side of the innovation conference room are the CEOs who believe that innovation is more about process and less about creativity and inspiration, and as such it is a process like any other, whose throughput and return on investment can be specifically measured. What I can't help but notice is the CEOs who believe, like Google's Schmidt seems to believe, that innovation should not be burdened by measurement are those who run organizations with an extreme surplus of cash flow. CEOs who are becoming increasingly invested in understanding the return they are getting on their innovation spend are more typically leading organizations that are actively competing on margins. I can't help but think of the maxim, "You measure what matters." It is a luxury to be able to ignore or take on faith the benefit of any program; I'm thinking that for the large majority of firms, innovation programs will not remain exempt from the calculus of waste for very much longer. | ||
Comment [96] | Permalink |
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| Categories: General | ||
February 27, 2008
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| Posted by Cass Pursell at 4:11 pm | ||
| The Organization for Economic Co-Operation and Development (OECD), is an organization that was once described as a think-tank for rich countries. In a recent publication, the OECD defined innovation as "new products, business processes and organic changes that create wealth or social welfare." It's a definition that isn't tied to Research and Development spending, and it indicates a break from a technology-centric innovation paradigm. This is significant because more and more business leaders are becoming disenchanted with their return on innovation investment as defined by R&D spending. While many organizations still funnel oodles of money into research and development, many are growing tired of the lack of a demonstrable correlation between R&D spending and growth, profitability, or shareholder returns. This is why an emerging tendency is for organizations to move away from establishing vertically integrated R&D shops, and toward a more grass roots innovation model. Why spend millions on a focused, insular approach to developing new ideas, the thinking goes, when great new ideas are laying around on the sidewalk outside the corporate headquarters? I'm paraphrasing. But the basic idea is to open up to ideas generated outside of the corporate castle walls, and to connect previously untapped intellectual capital with the financial wherewithal of the organization. The primary take-away for me here is that there seems to be innovative thinking being applied to the process of developing fresh ideas that create value. We'd all do well to pay close attention, because if someone can demonstrate that it's possible to improve the ROI of innovation processes by reducing R&D investment while holding constant or even improving the number of viable ideas generated for the innovation pipeline, that would be a value-creating idea, to be sure. | ||
Comment [13] | Permalink |
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| Categories: General | ||
January 31, 2008
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| Posted by Cass Pursell at 4:07 pm | ||
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(Or, Is That a Canary in Your Coal Mine?) The Boston Consulting Group (BCG), in partnership with BusinessWeek, conducted (from October 2006 through March 2007) its fourth annual survey of senior executives on innovation and the innovation-to-cash process. Its key findings, released in August of last year, include some worrisome trends:
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Comment [65] | Permalink |
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| Categories: Buzz/Press, General | ||
January 31, 2008
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| Posted by Cass Pursell at 3:12 pm | ||
| Wal Mart is being complimented and criticized in equal measures for its Green Innovation program. As one of the most polarizing business entities in modern history, Wal Mart's ability to elicit this kind of dueling reaction is hardly surprising. The "Wal Mart" effect aside, though, innovation that is aimed at addressing cultural issues can be inherently controversial, and is therefore an interesting addition to the general innovation conversation. Jack Hipple pointed out in a recent commentary that innovation isn't always about new products or businesses, but it is always about dramatic positive change, and the green innovation programs that have sprung up over the past few years are both an embodiment and a proof of that idea. In Wal Mart's case, if we set aside for the moment the argument against the retailer's ability to participate in true green innovation (it goes something like this: when it comes to sustainability, big-box retailing is to goods distribution as clear-cut logging is to harvesting trees) and accept that big-box retailing is a modern reality, then it can be informative to look at its green innovation program. The green market space is today one of the most financially attractive, and the fact is that Wal Mart believes that it needs to be in it. Its same-store sales growth has slowed down. Its stock price, after rising 1,205% during the 1990s, fell 30% from the time Lee Scott took over as CEO in January 2000 through 2006. Add to that concerns illuminated by a McKinsey & Co. study that found that up to 8% of shoppers had stopped patronizing the chain because of its reputation, and Wal Mart had a legitimate crisis to respond to. Thus was born the Wal Mart green innovation intention - an innovation strategy aimed primarily at re-positioning the Wal Mart brand in the marketplace. Wal Mart defined its green innovation intention specifically and publicly - the company announced plans to eliminate 30% of the energy used in stores, reduce solid waste from its U.S. stores by 25% within three years, and invest up to $500 million in sustainability projects. It's also working with suppliers to figure out ways to cut down on packaging and energy costs and has already opened two "green" supercenters. The program is basically designed to reject the false choice between the environment and the economy, and to strategically position Wal Mart as not just the world's largest retailer, but also the greenest. It's also designed to be measurable: acting with unusual transparency, Wal-Mart published a benchmark calculation of its carbon footprint. The company estimates that its U.S. operations were responsible for 15.3 million metric tons of CO2 emissions in 2005. About three-quarters of this pollution came from the electricity generated to power its stores. It is in this kind of analysis, which has happened in direct support of the organization's innovation program, that the benefit of a green innovation intention is defined; after the green innovation program was implemented, Wal-Mart spent nearly a year measuring the company's impact. Fairly quickly, the environmentalists spotted waste that Wal-Mart's legendary cost cutters had overlooked - for example, Wal-Mart determined it could save $26 million a year in fuel costs on its fleet of 7,200 trucks merely by installing auxiliary power units that enable drivers to keep their cabs warm or cool during mandatory ten-hour breaks from the road. Before that, drivers had let the truck engine idle all night, wasting fuel. Another example: Wal-Mart installed machines called sandwich balers in its stores to recycle and sell plastic that it used to throw away. Companywide, the balers have added $28 million to the bottom line. Two lessons jump off the page: there is innovation gold to be mined by practicing the art of identifying heretofore generally accepted false choices and re-examining their merit, and innovation programs can be used as much to strategically reposition an organization as to develop new products or businesses. Dramatic positive change, indeed. | ||
Comment [70] | Permalink |
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| Categories: General, Strategy | ||
December 28, 2007
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| Posted by Cass Pursell at 11:45 am | ||
| Do a Google search on Innovation in 2007 and see what you return. Lists of cool inventions, next-generation product ideas. A conference or two. No mention, however, of ideas on improving innovation processes. To my mind, this is an acid-test exercise that illustrates how far organizations have yet to go to successfully adopt an innovation intention. I couldn't let the year end without throwing out my vote for the best innovation process idea of the year. I tend to favor the application of proven approaches when dealing with new challenges. I like the idea, for example, of mining Lean Six Sigma methodology for tools that can be used in improving organizational innovation processes. For that reason, my vote for Best Innovation Process idea of 2007 goes to The Innovation Value Chain, presented by Morten Hansen and Julian Birkinshaw in the Harvard Business Review earlier this year. The innovation value chain presents innovation as a sequential, three-phase process that involves first the generation of an idea, then the development of an idea, and finally the implementation of developed ideas into the marketplace. There are six critical tasks that must be performed across the three phases: * Internal sourcing * Cross-unit sourcing * External sourcing * Selection * Development * Company-wide spread of the idea Each task is a link in the innovation value chain. Along the chain, there may be one or more activities that a company excels in, and others that a company may struggle with. For example, Inuit (the maker of Quicken) was an organization with lots of ideas, exhibiting internal sourcing as an organizational strength. Conversely, they had little discipline for bringing its ideas to market, implying weaknesses in selection and development. I like Hansen and Birkinshaw's idea because it recognizes that innovation challenges differ from firm to firm, and provides a structured approach that firms can use to identify their own strengths and weaknesses. It encourages executives to review their innovation processes from end-to-end. The innovation value chain is a great idea, one that organizations would be well-advised to add to the agenda of their 2008 strategic planning retreats. Let me know if you have any better ideas for which you'd prefer to vote. | ||
Comment [7] | Permalink |
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| Categories: General | ||
December 28, 2007
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| Posted by Cass Pursell at 11:00 am | ||
| Prematurely born innovations generally do not fare well when released too soon into the innovation pipeline. Further, we know from our experience with Lean Six Sigma that clogging the innovation pipeline with too many projects will cause the overall innovation lead time to swell; conversely, understanding which innovations are ready for release into the pipeline can greatly reduce innovation Lead Time. The obvious next question, then, for those who care about shortening the time it takes to bring new ideas to market (e.g., everyone) is how to go about the business of controlling the inputs to the innovation process. According to Webster's, an incubator is a "boxlike apparatus in which prematurely born infants are kept at a constant and suitable temperature." Innovators' infants are thoughts, ideas, concepts, insights, and conclusions. Creating an internal product-development incubator, then, can serve two purposes: nurturing ideas until they are ready for market, and helping to regulate the release of projects into the innovation pipeline. Business incubation is a business support process that accelerates the successful development of innovative products by providing an array of targeted resources and services. There are already models available for emulation. IBM for example set up something called the Emerging Business Organization, which has produced businesses based on innovative technologies and is generating over $2 billion in annual revenues. Yahoo began an off site incubator last year that they call Brickhouse, whose mission is to shorten the time it takes to bring new ideas to market. Brickhouse produced its first product this year, Pipes, a free software tool that lets users gather and mix RSS feeds from many Web sites. Pipes received critical raves by bloggers for its ease of use. The site was so busy its first day that it crashed. Critical to the definition of traditional incubators is the provision of management guidance, technical assistance and consulting tailored to young growing companies. Maybe it's just me, but this sounds like a great opportunity for businesses to marry up their Innovation and Six Sigma programs. | ||
Comment [31] | Permalink |
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| Categories: General | ||
November 28, 2007
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| Posted by Cass Pursell at 12:50 pm | ||
| In my last post, I referenced a recent article found on Forbes.com. The article, "Built for Innovation", was written by Stephen Wunker and George Pohle. Wunker leads the healthcare, financial services, and telecom industry practices at Innosight, one of the organizations referenced in the article as contributors to the research referenced there, and Pohle is a senior Partner in the Business Consulting Services and the Global Leader of IBM's Business Strategy Consulting Practice and its Institute for Business Value (IBV). Their article is based on research on the structures of innovative companies. The authors found four distinct models, or archetypes, that represent the majority of today's successfully innovative companies that I'll detail below. The "Marketplace of Ideas" archetypal organization is led by executives who are content with "leading from behind", a notion that is referred to directly in the Tao te Ching: "When a good leader is finished, the people think they did it themselves". That is, lead through empowerment of the people, rather than by undertaking all tasks yourself. This type of organization, modeled best by Google, recruits staff for their creativity and passion for problem solving, and uses well-stated goals and boundaries to provide staff the necessary focus while creating an environment that allows for and encourages experimentation. The "Visionary Leader" archetypal organization is led by an executive with insight and creativity, such as Steve Jobs, who motivates employees to pursue a vision. This organization values staff who are skilled at working within a team and at executing the leader's plans. The organization creates processes that are built around well-understood mechanisms aligning the executive's vision to the team's daily activities, and typically focuses its collective attention on a small subset of large initiatives. The "Systematic Innovation" archetypal organization has strong traditional executive leadership that sets priorities, raises urgency at the appropriate time, and allocates resources effectively. Such organizations assign small groups of cross-functional employees to discrete tasks and do not penalize failure. There is typically a high tolerance for dissent and experimentation in the culture, and a number of diffuse product lines, as seen in a company such as Proctor and Gamble, that are impossible for a small set of individuals to dictate and control. The "Collaborative Innovation" archetypal organization has leadership that is expert in developing strategic alliances and which recognizes when to outsource. Its staff is empowered to make deals with outside vendors with minimal approval polices; the organization excels at choosing the right external partner or technology that enables dynamic reconfiguration. This type of organization is above all excellent at understanding and responding to its customers' needs (think Facebook). The idea behind understanding the four archetypes is to place your own organization into one of these contexts, based on your organization's distinct personality. Trying to imitate a firm that embodies an archetype that your firm does not itself embody is a mistake, and will likely lead to a failed innovation program. Know yourself and don't try to change your natural method of innovation - as the authors point out, it's like trying to change your genetic makeup with plastic surgery. | ||
Comment [98] | Permalink |
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| Categories: General | ||
November 27, 2007
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| Posted by Cass Pursell at 11:59 am | ||
| For every Google, for every Nintendo, there are a thousand copy cats. Success breeds imitation in innovation, as in everything else. But what is striking to me about the organizations that attempt to mimic another company's successful innovation process is how often they fail to produce meaningful innovation. Henry Brooks Adams was a writer who died in the early 1900's. He once said something to the effect of 'chaos often breeds life, whereas order breeds habit'. In thinking about the reason innovation copy cats so often fail to replicate the success of the innovative originator, this quote came to mind. Don't get me wrong, though, because I'm not arguing that innovation springs only from chaotic organizations - that would be foolish. I am however suggesting that there is something inherently contradictory in the act of attempting to become more innovative through imitation. Innovation, if not synonymous with creativity, is at least a close cousin. Creativity and imitation are opposing concepts. By beginning with a strategy of imitation, I would argue that you are in danger of dooming your innovation program to failure before it ever begins in earnest. My advice - proceed, but proceed wisely. A recent article on Forbes.com described research performed by IBM Global Business Services, Innosight and APQC on how best to replicate successful innovators. Their research showed that successful innovation does not come simply by imitating the approach used by successful innovators. The research centered on a survey of 90 companies across a variety of industries and 14 countries, and demonstrated that the "sourcing, shaping and implementation of ideas at innovative firms tends to conform to a small number of innovation archetypes". The key to successful innovation is marrying one of these different "builds" with your own organizational culture, to create a self-reinforcing relationship between the organizational culture and the innovation program. So Google, Nintendo, et al are representative of those archetypes, but it's critical to remember that there are a number of different structures to choose from. Because there is no single model for successful innovation, many companies get into trouble by trying to replicate characteristics that are not organic to their own business. They should instead identify the benefits of the innovation model they already inhabit, and compare themselves to others who are using a similar approach. They can then borrow selectively from other categories. This approach reminded me of another quote, which in the spirit of the reference I won't attribute: "Originality is the fine art of remembering what you hear but forgetting where you heard it." In other words, innovation, like creativity, needs a structure in which to thrive; the measure of your success could well be your skill in selecting the right structure in which to nurture your organization's innovation intentions. | ||
Comment [90] | Permalink |
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| Categories: Methodology | ||
October 31, 2007
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| Posted by Cass Pursell at 4:45 pm | ||
| Halloween is a good day to remind us of the choices we're faced with in the context of our innovation conversations. I don't know if the "trick or treat" paradigm was invented by Halloween, but it was certainly popularized by the holiday. It's so common to hear the words, I never even think of the inherent choice they imply, the hidden threat they contain. Trick or treat? I've chosen wrong in the past, and wound up with a yard full of toilet paper damp with morning dew. This is a good day, maybe the best day, to talk about choices. I think most of us involved in the innovation conversation have already decided that choosing to develop and maintain an innovation intention is a good idea for the organizations we work for and with. It's possible, though, that we made the choice so long ago we've forgotten how important it is to re-set the intention, to remind decision-makers (and maybe even ourselves) of the arguments for actively pursuing a strategy that centers on innovation. I can think of two choices inherent to the innovation conversation that should be re-set at least once a year: to innovate or not to innovate, and when and how aggressively to pursue an innovation-focused strategy. My best argument for why to innovate (I'd like to hear yours, too, so please feel free to comment back) goes something like this: revenue, profitability, market share, and customer satisfaction are all examples of metrics that provide insight into your organization's current health and market position. However, none of these metrics can help you develop strategy for tomorrow; they are inherently backward-looking, and markets change too quickly to accelerate into the future using only your rear-view mirrors. Value and innovation, however, are forward-looking and work very well together in creating strategy. Without paying attention to innovation, your organizations will be stuck with with strategies that are designed to keep pace with market trends, which is what everyone else in your market space is already doing; without innovation, you're stuck in a cut-throat environment with margins that must inevitably decline over time. Value is a perfect compliment to an innovation focus, as it requires you to pay attention only to innovations that buyers are willing to pay for. After reminding yourself of why strategies based in an innovation intention are superior to those based on competitive benchmarking, it's a good idea to revisit your assumptions on which markets have the most opportunity to value-innovate. In general terms, markets are made up of companies that either compete on offerings common to the industry group (me-too organizations), companies that compete on their innovative offerings or innovative approaches to the market space, and companies that are somewhere in between. While two of the three market types require innovation in order to successfully compete, the third - the market made up of me-too business - offers excellent opportunity to value-innovate, expose new markets, and drive double-digit growth. So there you have it - you can be tricked into falling into the trap of designing strategy that will lock you into entrenched, head-to-head competition, and all the morning-after clean up those strategies entail, or you can treat yourself to a strategy based on value-innovation and enjoy the pleasure of having a market all to yourself. Choosing right is like having a bag full of candy and no one to share it with. | ||
Comment [64] | Permalink |
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| Categories: Strategy | ||
October 30, 2007
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| Posted by Cass Pursell at 3:47 pm | ||
| I have talked before about Little's Law and its role in improving the speed of the innovation process ("One critical issue that must be better understood is the cause of long innovation lead times," from my post on August 29th.) According to Micheal George, the author of some of the best business books in my library, using Little's Law is just the first step in controlling lead time in the innovation process. As a reminder, Little's Law is a function of work in progress and average completion rate, and it teaches us how to release projects into the development pipeline in such a way as to help us to maximize the speed of the process. But what happens after the project is released into the development pipeline? How do we account for the reality that some work gets done more quickly than planned and other work defeats our best estimates and takes far longer than we believed it would? I work frequently with software developers, who are purposely scheduled at very high utilization rates. On average, the higher the utilization rate of a developer, the longer any given project that depends on that developer will spend waiting for him or her to come available. In other words, if a developer is 90% utilized, an average project that requires him or her as a resource will wait in queue a lot longer than if the developer were only 50% utilized. This is true because inevitably, developers run into problems; for developers with higher utilization rates, projects will begin to pile up as those problems are worked through. This effect is known as the Law of Innovation Variation, and it can create potentially seismic impacts on lead time via its impact on average completion rate. Becoming familiar with the Law of Innovation Variation is a good first step for managers who are interested in creating visibility into how much "bunching up" of tasks will occur; it allows managers to isolate the point in the innovation process where this bunching up occurs, and helps to identify the critical resource(s) associated with the bunching up. By using Little's Law in conjunction with the Law of Innovation Variation, time-to-market can be compressed. Even if you're not in a highly commoditized environment, shrinking time-to-market will likely have a positive impact on both revenue and operating margins, and that's always a good thing. | ||
Comment [40] | Permalink |
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| Categories: Management | ||
September 29, 2007
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| Posted by Cass Pursell at 6:58 pm | ||
| Here's an anecdote I came across recently that reminded me of why many businesses I've been involved with have trouble successfully implementing their innovation intentions. On Thursday, September 4, 1862, Lee's army was headed north, crossing the Potomac. A bottleneck developed in midstream when a wagon train became entangled. Stonewall Jackson's quartermaster, Major John Harman, got the train moving again with a spectacular exhibition of profanity. The pious Jackson reprimanded Harman for his profanity, then smiled and accepted his explanation : "There's only one language that will make a mule understand on a hot day that they must get out of the water." Many executives would like to speed up their innovation programs, but trying to convince them that in order to speed up, they must slow down the flow of projects that they allow to pour into their innovation process pipelines can be like talking a mule out of the water on a hot day. I can't say that I've tried Harman's method - profanity-laced tirades tend to be frowned upon in most professional settings - but I have tried math, and that seems to work fairly well. The logic and empirical evidence supporting the use of the Law of Lead Time is difficult for anyone who respects data-based argument to resist. The fact is, there is a simple linear relationship between the number of active development projects and how long it takes to get any given project done. In other words, the more projects you have in the innovation process pipeline, the longer ALL projects will take. The converse is demonstrably true as well - the fewer active projects you have, the faster the innovation process can flow. By using the Law of Lead Time, decision-makers can use data to drive the prioritization of proposed projects and speed up the innovation process flow. The idea is to get the organization thinking in terms of which projects to launch and which projects to remove from the pipeline in order to attain the given innovation process lead time required for market success. If you can do that, you can avoid bottle-necking your innovation process and begin to build a competitive advantage around speed to market. | ||
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| Categories: General | ||
September 16, 2007
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| Posted by Cass Pursell at 8:11 pm | ||
| False choices have aways been around in business, and they have always been frustrating to deal with, primarily because they are self-perpetuating. Raise your hand if you have heard a co-worker or, worse, someone in a leadership position, point out that strategies based on optimizing quality and those based on lowering cost are mutually exclusive. It is a position that is impossible to defend factually, and yet it is commonly accepted as accurate, leaving anyone who is invested in arguing the point in the position of disproving an obviously false assertion. Frustrating, yes, and apparently time-wasting as well. But putting in the necessary effort to refute the logic of false choices wherever they are encountered is not the Sisyphean task it may seem. It may even lead to a breakthrough idea. Take, for example, the value-cost trade off. This dogma, one of the most commonly accepted false choices in business, states with absurd confidence that companies can either create greater value to their customers at a higher cost or create reasonable value at a lower cost. This belief has forced many a company to make a strategic decision between differentiation and low cost. Unnecessarily, as it turns out. W. Chan Kim and Renee Mauborgne are the authors of the 2005 book Blue Ocean Strategy, in which they followed a logical and data-driven methodology that led to the refutation of the value-cost trade-off and to a breakthrough in their thinking about the use of innovation to gain strategic advantage. The idea behind blue ocean strategy is a focus on what the authors refer to as value innovation, in which companies create strategic moves by making their competition irrelevant, thereby creating a leap in value. Most companies with innovation intentions do not differentiate in any meaningful way between types of innovation, but blue ocean strategy encourages leaders to place an equal emphasis on value and innovation. In the absence of an innovation intention, companies can of course create value, but only incrementally, and not enough to differentiate themselves in the marketplace. Pursuing innovation strategies without focusing on value, on the other hand, leads companies to focus on adopting technology-driven, market pioneering, or futuristic innovations that are often ahead of the demand curve. Companies that have followed a value innovation strategy have defied the value-cost trade-off and have successfully pursued differentiation and low cost simultaneously. These strategies have led companies to define new markets, and pursue winning innovation-based strategies that are anchored in the creation of value. While it's always fun to shoot down an argument based on false choices, Kim and Maurborgne remind us that it can be hugely profitable as well. | ||
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| Categories: General | ||
August 29, 2007
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| Posted by Cass Pursell at 11:48 am | ||
| Not long ago, Nicolas Carr made a provocative assertion in the title of his now-famous article "IT Doesn't Matter." In asking whether IT mattered, Carr was being intentionally provocative as a way of getting the reader's immediate attention. He both abandoned and answered the question in the first paragraph of the original article when he wrote that, "today, no one would dispute that information technology has become the backbone of commerce." He went on to say that IT is critically important in much the same way electricity is critically important; it is available to everyone in the competitive space, and so it is not strategic, although it does, of course, matter. The commoditization of IT is an interesting issue in the context of an innovation conversation. John Chambers, Chairman and CEO of Cisco, has said, "Products and services commoditize at such a rapid rate that in the end, the only competitive advantage you have is speed, talent, and brand." If speed is indeed a critical competitive advantage in this kind of environment, then we have to talk seriously about how to "get fast" when it comes to innovation. In other words, how can we apply Lean principles to our innovation processes? One critical issue that must be better understood is the cause of long innovation lead times. Solving for the question "how can we get the knowledge we need faster and convert new knowledge into offerings" would seem to be central to developing a strategic advantage around the ability to innovate in a commoditized industry. Lean, of course, focuses on maximizing process velocity by using Little's Law to reduce process lead time. Little's Law formalizes the relationship between lead time, the number of things in process, and average completion rate. A logical first step for organizations needing to drive faster innovation cycles, it would seem, would be to apply Little's Law to the organization's innovation process. Being able to calculate, track, and trend innovation lead time is the first step to turning speed of innovation into a competitive advantage. | ||
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| Categories: General | ||
August 27, 2007
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| Posted by Cass Pursell at 11:11 am | ||
| Sometimes in our enthusiasm for a program we can lose perspective on why the program is important. I've seen it time and again in organizations seeking to gain ISO certification or those adopting Six Sigma principles. The point of the programs is often lost in the rush to implement. ISO, for example, is principally a program designed to ensure all of our corporate ducks are in a row: can you articulate what you are trying to do? Can you actually do what it is you have articulated? Can you demonstrate that you are doing it? Pretty straightforward and foundational ideas that, if they are embraced in principle will make the organization stronger. In a similar vein, the point of Six Sigma programs is not the completion of a certain number of DMAIC-style projects per year, but the use of Six Sigma methodology to reduce defects and drive bottom-line savings. I've worked with enough ex-GE employees to know that when too much focus is placed on the program, the organization can lose focus on the desired outputs that the program was implemented to produce. These are lessons we would do well to keep in mind as we encourage our own organizations to adopt innovation programs. Scott Berkun is the author of The Myths of Innovation, and in a recent interview he made a similar argument. He said that the best approach to driving a culture of innovation is to avoid concentrating on innovation altogether. He argues that innovation is an inevitable end product of a creative problem-solving culture, so the best approach is to focus on solving problems. Do that, he says, and your organization will be plenty innovative without ever having to say the word. Berkun makes what I see as a very important distinction between the tool kit and the desired result. In all improvement programs, from ISO to Six Sigma to Innovation, we need to be mindful not to elevate the tool kit to a status that equals or even surpasses the importance of the results. | ||
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| Categories: General | ||
July 22, 2007
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| Posted by Cass Pursell at 1:22 pm | ||
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In late June, the Committee for Economic Development issued the latest in a series of reports by business think tanks illustrating a growing change in the way American business is thinking about value. "Built to Last: Focusing Corporations on Long-Term Performance," lays out a strong case against a destructive short-term focus that has infected American capitalism in recent years. It calls on companies to stop issuing quarterly earnings guidance and instead take the long view: "Decision making based primarily on short-term considerations damages the ability of public companies -- and, therefore, of the U.S. economy -- to sustain superior long-term performance." I read this news and thought of an argument that Prince William and I had earlier this year with a since-departed SVP of Operations. We were developing a level one dashboard for this guy's division, and were pushing him to include trending information for three, six, twelve, and thirty-six month periods. This SVP couldn't understand why he would want to know about trends occurring over anything past the shortest-term time horizons. It seems stupid, until you put yourself in his point-of-view: all of the performance incentives for his division were based on in-year metrics; all of the heat he took from his key stakeholders came from changes in metrics in the most recent past month, and all of the improvement plans he was required to develop and implement were supposed to drive change in-quarter. Of course he doesn't care about twelve-month and thirty-six month trends. The short-term business focus that the Committee for Economic Development, the Aspen Institute, and others are now criticizing is driven primarily by business process scorecards that focus exclusively on short-term metrics. Short-term scorecards are built because executive performance incentives are wholly unconcerned with performance trends longer than one year. This unhealthy paradigm makes it very difficult for most organizations to successfully adopt an innovation intention, because, I would argue, innovation is a concept that can only flourish organically within an environment that cares about and rewards long-term meaningful growth patterns. Attempting to develop a culture of innovation in an organization with a short-term business focus is like planting tomato seeds in the desert - the minute you stop actively tending the garden, dry winds will blow the seeds away. Getting a few good tomatoes isn't impossible, it just takes constant attention. |
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| Categories: Management | ||
July 17, 2007
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| Posted by Cass Pursell at 3:19 pm | ||
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It's instructive to take a few minutes every now and then to look back and remind ourselves of what fueled the growth of some of the greatest businesses of the last century. Henry Ford once said, "If I'd asked my customers what they wanted, they'd have said a faster horse." Obviously not a fan of Voice of Customer as an input to breakthrough innovation, was Henry, although his major process innovation - the assembly line - was tied directly to customers' desires for inexpensive and reliable transportation. Over the past several years Ford Motor Company primarily demonstrated that sustaining meaningful growth forever is virtually impossible, but there is no question that Ford had a fantastic run. It was a run of success driven by innovation, a point made publicly a few years ago by the company itself when Henry's great-grandson Bill, then CEO at Ford, said, "To me, innovation is seeing what others can't see, and using that vision to build what others have never built." He went on, "Innovation resolves contradictions. It flattens old barriers, and it's the heart of all progress...my great-grandfather Henry Ford built his first car in a shed behind his house. At the end, after he was finished, he realized there was one thing he hadn't anticipated. The car was too big to go out the door. He actually had to knock down a wall to drive it out. We intend to remind people every day that if you want to build something that's never been built before, you may have to knock down a wall or two." Bill Ford stepped down as CEO last year, which is too bad, because I think he was on the right track. But his inability to get his great-grandfather's business turned around demonstrated how difficult it can be to change a culture in which innovation is discouraged into a culture where innovation is celebrated. A culture in which innovation was discouraged is what Ford Motor Company had turned into; this means that at some point, Ford's management team lost focus on their innovation intention. The Ford story is another reminder both of how important innovation is to sustaining meaningful growth, and to how difficult maintaining an innovation-centric culture can be over time. |
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