Tuesday, October 24, 2006

Open Innovation Blueprint: Commandment 10

This concludes my on-going blog on mapping out a blueprint for implementing Open Innovation. The first entry in this series talked about the framework I am using to analyze this question, the Ten Commandments of Change Management. Open Innovation is a big change, and therefore requires a change management program. In today's blog, I'll cover the tenth element of the framework:

10. Reinforce and institutionalize the change
Sound bites uttered by managers and executives in speeches, meetings, and even at the water cooler help reinforce and institutionalize Open Innovation. Here is a list of phrases, sayings, and insightful come-backs you should arm your R&D managers with:
  • Invention White Space – Reiterate that Open Innovation is not about outsourcing R&D. It’s about making innovation more efficient by avoiding the reinvention of the wheel. Open Innovation is about finding the areas where nobody has invented yet so talk to people about “Invention White Space”. After an in-depth Technology Scouting exercise, if nothing suitable is found, say to R&D “that’s where we should invent because it’s whitespace”, knowing with confidence you’re inventing something that is a) needed and b) nowhere else to be found.
  • “Not Invented Here was invented here” – When Open Innovation comes to town, people start talking about the “Not Invented Here” syndrome that is believed to inhibit Open Innovation. Normal human inertia does cause this to some degree. To counter-balance it, make jokes like they make at P&G, like “Not Invented Here was invented here”.
  • “Proudly Invented Elsewhere” – Similar to above, this phrase originally came from P&G, but no reason other companies can’t use the same catch phrase.
  • “Half of our new products will come from us, half will come through us” – For those R&D people who feel their job is threatened by Open Innovation, a statement like this reminds them that most inventions found outside will not be “ready to go”. Often they’ll need to be integrated, packaged, combined with other internal or external inventions, or they will have production scale-up challenges that R&D needs to apply creativity to.
  • “Use it or Lose It” – A great old expression you can apply in a new way to sustain Open Innovation at your company. Remind people that the reality today is other companies are making their IP available—they have a strong incentive to. So if we don’t use it, one of our competitors will. The imperative is to find it faster.
  • “Stand on the shoulders of giants” – Many brilliant people have downplayed their genius by reminding us that they’ve only been able to achieve by standing on the shoulders of giants. Great inventors in your organization probably believe this too. What you want to do for them is make your Technology Scouting process so efficient at finding great inventions that they can come to rely on you to find the shoulders for them to stand on, the building blocks they need to achieve their own greatness.
  • “Find our value add” – This concept, like many of the others, is another way of talking the need for people to identify the invention white space. Say to your employees that our value add is in understanding how to tailor the technology (whether an internal invention or external one) to the customer’s problem. Emphasize how much importance managers in your company will begin to place on rewarding the R&D people who demonstrate initiative in understanding the customer’s and market’s need.
  • Edisonian Approach – Even Edison who lived long before a time of Open Innovation knew the importance of building upon others’ work. He said, "When I want to discover something, I begin by reading up everything that has been done along that line in the past - that's what all these books in the library are for. I see what has been accomplished at great labor and expense in the past. I gather data of many thousands of experiments as a starting point, and then I make thousands more." (Wikipedia.org)

White paper on "Implementing Open Innovation" now available
This blog series has been adapted into a white paper called "Implementing Open Innovation" that I would be happy to share with you and your company if you are looking to implement Open Innovation.

The analysis above draws on information from Suzanne Harrison’s new book, Einstein in the Boardroom, Henry Chesbrough’s book Open Innovation, the Harvard Business Review article on Procter & Gamble’s Connect and Develop program, Breakthrough by Stefik & Stefik, and my own interviews and experience. I would also like to thank Mike Docherty for inspiring use of a "series" for blogging. Thanks Mike.

PDMA 2006 – Day 2 Lunchtime Keynote, Ping Fu

Ping Fu opened with a promise: A lunchtime keynote speaker is supposed to add some spice to your meal.

I, for one, thought she really delivered on that promise.

Ping’s story was truly inspiring. She endured the hardships of the Chinese Cultural Revolution including having her parents taken away from her and having to raise her 4-year-old sister. She was exiled from China for political reasons and sent to the US where, although she only started out knowing 3 words and carrying $85, she managed to earn a second degree in computer science and land a job at the NCSA. There she worked with super computers and gave Marc Andreesen encouragement to work on the web browser that led to the founding of Netscape. Later in life she founded a really interesting company called Geomagic that can take a 3-D image of an object and enable you to re-create that same object. Think of a 3-dimensional equivalent to the photocopier. Although it can’t be used to fax a pizza, Geomagic has some very compelling value propositions involving things like engine turbine rotor blade replacement where an exact replica is needed to keep costs down in the financially challenged airline industry.

I was inspired by her stories of needing to learn that she had to take responsibility, even when she didn’t have the experience to know what to do. Like when she raised VC money but didn’t know how to spend it and found out that the executives she had hired who should have known how to spend it ended up wasting it. She was able to recognize that she had the power and ability inside to take that responsibility even though she didn’t have the experience. Perhaps this draws from some of her experience as an 8 year old having to grow up quickly and take responsibility for her younger sister.

This will be my last post on PDMA 2006. I hope my efforts and memorializing the sessions I attended have been helpful to some of you. If you would like to debate anything, I welcome you to post your comments online. You know I don’t usually put much thought into stuff I put on blogs. It’s supposed to be that way to encourage naïve thinking that can lead us to new ideas. I know a lot of people who read blogs are intimidated to say something, but if you feel that way just know that it is supposed to be a free-form, casual setting and you can let your guard down a little (or a lot).

I’d appreciate any introductions to great Product Marketing professionals who’d be interested in working for an exciting startup in Silicon Valley.

PDMA 2006 - Track 4 - Roadmapping at Nokia for product ideation and development

Speaker: Scott Smith, Futurist, Social Technologies

What could be the progression of technology usage from today till 2012? How will consumers use the devices in 2012? What might be the most important use-stories? How should Nokia respond to the user needs?

Understanding and Mapping Implications - What are major emerging needs? What are the emerging capabilities? How do the crossing of these create opportunities or “sweet spots”?

This was a fastening session with visuals I can’t reproduce here. Scott has a very cool way of representing the output of Roadmapping. I’d contact him if you’re interested:

Scott Smith
+1 202 223 2801 ext 215
scott.smith socialtechnologies.com

PDMA 2006 - Track 4 - Operational Excellence in the Midst of Uncertainty

Speaker: Jens Hamester (DaimlerChrysler AG)

Jens outlined their NPD process at DaimlerChrysler. It consists of a familiar-looking set of phases reticent of a stage-gate model. Here were some unique ideas he focused on:

What does Simplification mean? It does not mean disregard for all complicated parts nor does it suggest being overhasty, naïve, primitive, ordinary, or superficial. It does mean focusing on crucial points and essential interrelations.

What does Radical mean? Well again, it does not mean things like moving to extremes (extremism). It doesn’t mean getting ruthless, manic, or rowdy. What it does mean is attacking the roots of the challenge while retaining control of decision chronology.

There were a few guiding principles they used to guide their process. For these, I’m just pasting in the content of the slides because they were pretty good:

Rule 1: Use Simple Real World Metrics to Address Uncertainty in the Hazy Pre Product Development Stage

-Do not attack with even more complex evaluation methods
-Accurate methods can not (always) cover complex environments
-Use project ranking by distinguishing pure customer benefit
-Demand courage and entrepreneurship to promote innovations

Rule 2: Center AE Activities Around Today’s and Tomorrow’s Customer Buy Criteria.

-Strategic direction from brand positioning is used to define AE project portfolio
-Define not 20, but merely 4 fields of criteria
-Choose stable customer buy criteria for continuity
-Achieve critical mass within each main field

Rule 3: Place Small Strategic Bets by Tracking Future Trends on a Qualitative Basis.

-Initiate expert interviews with drivers, owners, scientists
-Identify driving forces for market developments
-Transform market development into corporate risks and opportunities with respect to possible disruptive elements

There was on more rule (4: Realization of Innovations Needs Discipline.) but I didn’t find it as useful to include.

PDMA 2006 - Track 4 - Disruptive Innovation Tools to Predict and Drive Growth

Speaker: Michael Clem (J&J), Ruben Gavieres (Deloitte)

J&J hired Clayton Christensen for advice because they wanted to conduct more of their own innovation, it was becoming to expensive to grow through acquisition. They decided to set up a special division and to hire Deloitte because Michael Raynor was the co-author of the Innovator’s Solution.

Ruben reviewed the core idea behind the innovator’s dilemma. See Wikipedia for a written explanation.

Michael had a great slide that illustrates the difference between sustaining innovation and disruptive innovation.

Sustaining innovation is like fortification (picture a castle under construction)
Disruptive innovation is like exploration (picture a 15th century ship out on the ocean)

Michael gave a laundry list of techniques that recur in successful innovations in the medical field. It’s a good list that reminds me of TRIZ although tailored to medicine.

They found Jobs-Outcomes-Constraints (JOC) very helpful in framing the needs.

They’ve adapted a spiral development model from the software industry. Basically it entails an iterative model with recurring go/no-go decisions. Each pass around the spiral should reduce the risk by collecting more information about the market and the technical feasibility. They tried to keep it to 3 turns around the spiral.

By the way, I’ve not tried to reproduce the presenters’ slides which covered the material pretty well.

PDMA 2006 - Track 4 Making Innovation Repeatable in Large Orgs

Speaker: Yoon Lee, Samsung Electronics

The focus of this presentation is about improving “product innovation” at large organizations (5,000+) through improving four major domains that support product innovation:


The intersection of these three is your Product.

Some causes of product failures:

Apple misread customer maturity curve-Apple II set user expectation on the PC price

Sony PDA failed because it misunderstood the need – simplicity over functionality.

Ford failed to make the process robust to support sales.

Why do new products fail? According to AMR, 46% of the time, products fail in market because the company didn’t meet customer needs.

Yoon recommended the “Rainmaker Index” (1998 PDMA conference) that shows analysts in the top third of the “Rainmaker Index” generated 95 times more profit than those in the bottom third. For more information, see winovations. That said, you need someone who can put it through a repeatable process.

The presentation largely followed the slides, so I’ve just focused on highlighting what I thought were important points or content that wasn’t captured in the slides.

PDMA 2006 - OCI Awards (part 2 – Xerox Corporation)

Innovators at Xerox produce about 2 patents per day on average.

One early key innovation was with their business model. Rather than selling the customer a copier, they leased them the copier and they were charged per copy. Xerox would handle the maintenance.

In 2000, Xerox had a “Perfect Storm” including decreasing revs, new competitors, delayed product, stock price drop of 15%, debt rating fell. So they focused on stopping the bleeding. But “I have to survive the present, but I must invest for the future or else I’ll fail” is what the CEO declared.

Today’s story is about that time period.

Here’s how they created a culture of innovation:
  1. Intense customer focus
  2. Create and leverage the world’s best new technologies
  3. Use a disciplined process
  4. Embrace and manage risk
Everyone knows about VoC, conjoint, and the rest of the tools of customer-focused marketing. However, they also have the Gil Hatch Center for Customer Innovation and Ethnographic Research.

The Gil Hatch center invites customers (sometimes alone, sometimes together) to interact and work with Xerox’s engineers and scientists. Customers receive access to Xerox’s technology. They work together to develop concepts.

Ethnographic research flips it around and Xerox goes out and visits the customers in their native environment.

These tools augment VoC and actually make customers a part of the innovation process.

Create and Leverage the world’s best new technologies.
  1. Global presence
  2. Crown Jewel Process – “Partner or perish”
  3. Managing the innovation web

We don’t think in terms of “make or buy” but instead “how can what’s available out there complement what I’m doing”.

Using a disciplined process...

  1. Rigorous (data driven, metric based) (Lean Six Sigma, Design for Lean Six Sigma)
  2. Make it easy to use
  3. Leverage Information Technology

Originally their process was documented across 11 binders. That was too cumbersome, so they simplified it enabled people. They also employed information technology to make it easier.

Design for Lean Six Sigma (DLSS) is about never letting waste into the original design. At first they had to grapple with how to combine Phase Gate and DLSS, but they ultimately determined it was:

Phase Gate – “the what”
DLSS – a set of tools for developers to use to keep it simple

Failure is defined as letting a project go on too long w/o doing the due-diligence to test assumptions. Failure is also defined as missing an opportunity. It’s not failure if an idea falls out of the rigorous process, that’s success.

PDMA 2006 - OCI Awards (part 1 – Bank of America)

The Outstanding Corporate Innovator award is presented each year, to date 33 awards.


1. Significant commitment to innovation
2. Have proven themselves capable of delivering innovation sustainably
3. Their process and culture provide a good learning experience for the rest of us

Bank of America
Xerox Corporation

Each one of these companies have made a strong commitment to innovation as a strong driver of growth. They make strong use of Voice-of-the-Customer (VoC) to determine what they need to do. They both have excelled at creating a highly innovative culture. We’re going to learn from them through their best-practices presentations.

Bank of America – Ray Chin
Innovation story / capability at BofA have three characteristics

1. It’s been a journey, it didn’t start over night
2. Innovation is a part of our DNA
3. Integration is our competitive advantage (although it’s not easy)

We were one of the first non-manufacturing companies to apply Six Sigma. We used it to develop the process itself

Gen 1: Build the process (2002 – 2003)
Gen 2: Execute and triage the process (2003 – 2005)
Gen 3: Integrate and refine (2004 – 2006)

At every step we improved the process (that’s the Six Sigma aspect).

The process in more detail…

They’ve integrated the strategic planning with NPD process itself.
  1. Vertical & Horizontal Strategic planning
  2. Idea Generation (including triage)
  3. Stage-Gate with these phases: DMAIC
  4. Product Lifecycle Management
  5. Back to Vertical & Horizontal Strategic planning
DMAIC – Define, Measure, Analyze, Improve, Control

Vertical & Horizontal Strategic planning consists of a cascading Hoshin Plan. Hoshin Plan definition: “The basic premise behind the hoshin plan is that the best way to obtain the desired result is to ensure that all employees in the organization understand the long-range direction and that they are working according to a linked plan to make the vision a reality. The second aspect of the plan is that there are fundamental process measures which must be monitored to assure the continuous improvement of the organization's key business processes. In essence, all are heading in the same direction with a sense of control.” (source)

Example: Keep the Change program

  • Strategic plan – Boomer women with kids had unmet needs and they seemed to have growth potential for BofA.

  • Idea Generation – They conducted VoC with the target

  • Define – Stated it simply

  • Measure – Evaluate and validate

  • Analyze – The final design

  • Improve – Build and prepare for the launch (coding, training, marketing)

  • Control – Launch and monitor
VoC helps drive the innovation process:
  • Concept Screening (ethnography, mind mapping, brainstorming, etc.)
  • Concept Optimization (qual. and quant.)
  • Business Case & Build - Concept Testing
  • Launch - Market Test (VoC, BoC (Behavior of Customers))
  • Monitor & Improve
They use Accolade to manage the process.

Their ethnography indicated that Boomer women would ‘trick’ themselves into saving money, so Keep the Change would allow them to round-up their purchases and the change would go into a savings account. BofA would match the amount.

Key Performance Metrics

1. Number of ideas generated
2. WIP, Yield, Kill Rate
3. Strategic Mix (incremental, strategic, breakthrough)

1. Average Completion Time
2. Average time to launch
3. Average aging

1. Tollgate achievement rate
2. Rolled Throughput Yield (RTY)

1. % of total rev. from new produscs
2. % of benefits achieved
3. number of patents

In recent years they’ve focused on improving their Kill Rate.

They’ve driving double digit growth from their new products. BofA is the fifth most profitable company in the world.

Here’s their framework on sustaining innovation.
  1. Leadership commitment and growth aspirations
  2. Idea generation and management
  3. Content development and prototyping
  4. Portfolio management and measurement
  5. Talent management
  6. Governance
  7. Funding
  8. Innovation culture
“Flawless execution” is the mantra of their management team. That would seem to fly in the face of creativity. They’re expected to take risks, calculated risks. Each stage of the process is meant to reduce the risk. It’s the discipline of their process that enables them to achieve close to flawless execution while also being creative.

Strategically driven innovation
VOC throughout the process
Integraiton (of the products, the stakeholders, etc.) made the difference

In its first year, over 3.2 million accounts were created. Customers have saved of ver $230 million in their accounts (not including the amount BofA will match on their anniversary).

PDMA 2006 - Darrel Rhea Keynote

Darrel Rhea is from Cheskin Research, a leading market research / innovation consultancy.

Main message: making meaning with relentless attention to people you serve.

What’s the role of a keynote speaker?

1. Create a useful framework for the rest of the conference
2. Provoke controversy
3. Remind us of the value and importance of what we do

Darrel showed the Tide package cut up in 16 pieces and jumbled up on the screen. It was still recognizable. Cheskin claims credit for this.

Theme of the conference: competing to win. Cheskin has had a profound impact over 60 years. They worked on x-box, and Windows Mobile, 5 generations of MS Office, etc.

Cheskin’s privilege has been in their access to people. They’ve interviewed millions of people. What have they learned?

He wrote another book called “China’s new culture of cool”. The Chinese youth today is a huge segment and they’re nothing like their parents.

Another book that Darrel has written: “Making Meaning”

As marketers, designers, researchers, inventors, what we do is serve human beings.

To truly serve people requires compassion & empathy.

When we do our best work, we create value, enrich lives, and evoke meaning.

PDMA 2006 - Scott Cook Keynote

Scott Cook is the founder of Intuit.

The company was founded when Scott noticed his wife having trouble balancing her checkbook.

Intuit has 16M customers for Quicken and 72% market share.

Dick Drew, 3M employee, was working on sand paper. He went to see how autobody repair shops were using sand paper. The shop employees were complaining because tape would pull paint off the cars. He started working on a tape that would lay down cleanly but come off easily, leaving no residue.

McKnight, the CEO came in to talk to Dick and wasn’t happy he was working on his new invention. McKnight told him to stop and work on sandpaper instead because they knew how to sell sandpaper. Dick followed orders for about a day. McKnight came back a few months later and saw Dick still working on tape. He didn’t say anything. Thanks to him not saying anything, Dick was able to invent masking tape and cellophane tape.

“The bottleneck is always at the top of the bottle.”

-Peter Drucker

This was a shot taken at senior management (which is at the top).

5 Principles for Innovation

  1. Celebrate the entrepreneur
  2. Aim high ... to change lives
  3. Innovation comes from mindset change
  4. Savor surprises
  5. Put your customer metrics above your money metrics
Then Scott told the story of the invention of containerized freight. The time in port dropped by 36 fold 50 years ago. Don’t focus on the boat in the water, focus on the boat in port was the mindset change. Others had worked on making faster ships. This story illustrates principles 1, 2, and 3.

QuickBooks story...

They were launching a product that had 1/2 the features at twice the price and had no recognized brand. It had bugs in it, bad bugs. The advertising was really bad too. Their internal goal was to catch up to the market leader in 2 years. In 1 month QuickBooks became the market leader!

The story started 2 years earlier. They surveyed Quicken users and found out that 1/2 of the users were using it in an office setting. It bugged Scott, because it was for home use. So he went and found out what was going on. Turns out the reason was that small business users hated accounting. So they built accounting software that worked the way that these business users actually worked. That was what made it such a success, despite all the blemishes.

The key to a mindset change is savoring surprises. When you hit something that you don’t understand, that’s an opportunity to learn something.

Success starts with humility. Sometimes our own beliefs are what are holding us back. All our minds are packed with furniture. The key to innovation is removing the furniture to make room for the new furniture.

“Empathy is not just about walking in another’s shoes…first you must remove your own shoes”

-Indian proverb

They identified five distinct taxpayer types. One of them was a “worry warts”. These people were willing to do the work of preparing taxes but they worried that they were doing something wrong. So they introduced a version of TurboTax with an integrated online chat that can help him access live assistance.

“Discovery consists of seeing what everyone else has seen and thinking what nobody else has thought.”

-Albert Gyorgyi, Nobel Laureate

Here’s another problem they’re working on. Some businesses, such as a bike shop, want to be found by web users but they want the users to come to the store. The problem has been getting their inventory on the web. So Intuit has integrated QuickBooks with Google to upload the inventory information in QuickBooks with AdWords and Foogle.

Soon Froogle will be integrated with Google.

The last point is to put customer metrics ahead of financial metrics. Careers are made or lost on profit numbers. But what metrics exist for customers? Profit is easy to measure, customer metrics are not. So what’s a good metric?

“The only way to grow a business is to get customers to come back fro more and tell their friends”

-Enterprise Rent-A-Car

So Intuit measures (on a scale from 0 to 10) whether their customer would recommend Intuit products to their friends. They categorize the response as:

  • 0-6 detractor
  • 7-8 passive
  • 9-10 promoter
This is the final metric that Intuit tracks:

net promoter score = % promoter - % detractor

Now Intuit is working on health care. They’re developing a medical bill application for consumers with big medical expenses. It was invented by an Intuit employee whose son was born with a dire medical problem. The employee designed some software to help manage the medical bills. He then worked with Intuit to look for others with the same problem. That’s how a new product was born.

Sunday, October 22, 2006

PDMA 2006 CEO Roundtable

CEO Panelists
  • Clemens Caicedo, Senior Director, Strat. Alliances, Latin America Human Helath, Merck & Co. Inc.
  • M.P. Chugh, Chief Executive, Tata Autocomp Systems Ltd.
  • Prof. Deng Mingran, Dean, School of Management, Wuhan Univ. of Tech, China
  • William B. White, President, DuPont Canada
  • Moderator: Deborah Wince-Smith, President, Council on Competitiveness

Council on Competitiveness representative spoke first. Purpose of the CoC is to understand competitiveness and what do we need to do to maintain the US’s competitiveness.

Competitiveness depends on innovation because we need to be able to sell high-value products around the world.

Innovation is I to the fifth power: imagination, insight, ingenuity, invention and impact and it all about the transformation of economic value.

We’re beyond the Knowledge Economy and into the Conceptual Economy.

M.P. Chugh spoke on India’s Approach to NPD and Innovation

India started with overhauling its patenting system and privatizing.

It’s not really Indian companies that are innovating; it’s the multi-nationals that happen to have offices there that are innovating. Most Indian companies innovating are just adapting products for the local market.

He believes that only people can make innovation, not policies.

We need more funding, but really what we need is more people willing to take risks.

Prof. Deng Mingran spoke on integrative innovation of product-industry-region

They plan to study the Silicon Valley to see what they can learn to improve innovation in China.

Clemens Caicedo

Latin American countries need to develop the basic institutional factors to attract capital to develop platforms for innovation.

They want to emulate Research Triangle from Virginia (?) where the economy used to be just like that of Latin America today, namely based on natural resources and commoditized.

Legislation in Brazil prevented professors from working with the private sector. That had to be reversed to foster innovation.

William B. White

We recognize now that we can’t do technology push, that we need to understand the market first, obtain insights from the market, and do market-driven innovation.

He thinks in 10 years, a roundtable like this will not be organized by geography but by market. What markets will be receptive to the most innovation, not which countries.

Happy Birthday PDMA!

This marks the 30th anniversary of the founding of the Product Development Management Association. The conference opened with “Happy birthday to you” for PDMA.

PDMA membership has reached 3100 and has int’l affiliates all over the world. The sun never sets on the product development management community nor on the PDMA!

Keynote Presenter: Capitalizing on Opportunities in Emerging Markets
Presenter: Sam Pitroda, Chairman, The Knowledge Commission of India

Sam was introduced as the father of the “Telecom Revolution”.

“To survive for 30 years is itself an accomplishment,” was his congratulatory opening remark.

He was asked to talk about capitalizing on opportunities in emerging markets.

Only 20% of people on earth live in the developed world.

As a lad in India he heard President Kennedy’s announcement to put man on the moon and embarked on a journey to come to the US just to be a part of the excitement. The journey he had was the journey of many from the developing world. It’s been a great learning.

Information Technology has brought about openness, decentralization, etc. and as a result social transformation. It has opens new horizons as to what’s possible, what’s feasible.

China and India are coming online as markets that must be paid attention to. The number of people born in India every year is enormous. It would be like adding another Australia to the world every year.

These emerging markets need basic infrastructure. Three technologies will be critical:

1. Information and Communication Technology (ICT)
2. Biotechnology
3. Alternate energy

Two examples of the kinds of revolutions we’ve seen in emerging markets that have been possible against all the odds (gov’t corruption, etc.).

The first example is from Bangladesh. This year’s Nobel Prize for Peace went to someone who did work on microcredit. He realized that women in Bangladesh had trouble getting loans. With $27, he distributed it to 42 women w/trust alone. This was 30 years ago. Today 100 M people in the world use microcredit. Unicef has distributed $6B in Bangaldesh alone.

Then there was mobile telephony made possible by microcredit. Phones were used by women as an instrument of earning. They would walk town-to-town with these phones to help make phone calls and the women could make a living out of it.

The second example is long-distance telephony. He had tried to make a call to his wife overseas and couldn’t connect. So he decided he would solve this problem. The key was a different model from increasing telephony density (the US model). He decided to focus on access. Don’t focus on giving everyone a phone; instead focus on public access located in very convenient locations.

He had breakfast with Jack Welch in India. Welch said, “I’m here to sell engines”. Sam said, “we’re not buying engines, I’m here to sell you software”. Jack said he wasn’t there to buy software. There was awkward silence for 90 seconds. Jack finally said he wanted to hear about software in India. And so it goes.

“Product design came to my rescue”. That was good comedic relief. His story was that he was down and out, walking down the street, when he noticed Radio Shack selling something he had patented. So he sued them, won, and got the money he needed to get back on his feet.

Concluding remark: 5,000,000 people in this world are waiting for your new products, your ideas, your innovations.

“I wouldn’t have spent $70B on the war in Iraq, I would have spent $70B on human development there.”

PDMA 2006 Research Forum - 10-22-06 Morning cont. (Track 1)

Developing a Climate of Trust to Enhance Cross-functional Relationships within NPD teams (Rowland, Kyriazis)
This presentation was a conceptual framework because Rowland is at the beginning of her PhD program.

Question: How do you achieve the effective integration of multiple functions?

Rowland had some very compelling imagery to motivate the need for trust which I can’t describe in this forum ;-)

A lot of times, NPD teams are assembled quickly, before members have had time to develop interpersonal trust. What can trust come from then? Perhaps something called Swift Trust which relies on institutional cues rather than firsthand knowledge. (Jarvenpaa and Leidner, 1999)

Uncertainty: Is it a Threat or Opportunity for NPD teams? (Chen, Reilly, Lynn)
Research question: What view of uncertainty is right?

1. A major to rationality (Thompson 1967)
2. A source of entrepreneurial opportunity (Schumpeter 1934)

We think either view just looks at one side of the same coin, so we need to look at it both ways.

Exploring differences between inventors, champions, implementers and serial innovators in developing new products in large, mature firms (Simm, Griffin, Vojak, Price)

This is a continuation from her presentation last year, which was very good.

We’ve found that there are a lot of people with specific characteristics that matter for NPD. We know about stage gate models, and certainly process is important. But what about the characteristics of the people?

Different skills matter at each stage of product development. Creativity is needed at the FFE. Political skills are important for project approval. Facilitation is important for development. It’s unlikely that any one person can play all of these roles? However, there are a few people, serial innovators, who have the skills and capabilities to shepherd and innovation all the way from the beginning to the end.

3 studies and 1 pilot.

Today’s talk is about the pilot, however here are some points from the other studies.

Innovators are systems thinkers; they don’t think about just features and specifications. They believe technology is a means-to-an-end and is only there to make money for the corporation. They’re also idealistic and want to make the world a better place. A lot of them went through childhood tragedies and don’t want people to have to go through the same thing. They study both technology and business. What motivates them is being able to solve peoples’ problems and their motivation is intrinsic. They’re good at politics and process to operate successfully within the confines of a corporation. They have a very positive attitude about politics. They don’t have positions of responsibility; they get things done not by telling people what to do but by influencing them in creative ways.

They have a very interesting approach which involves jumping back and forth among the technology, the customer, and the market. They spend a long time specifying the problem. They then plan, develop, and publish post-invention.

In the pilot study, they talked to 2 inventors, 2 champions, 3 implementers, and 3 serial innovators. They then looked at personality differences.

Inventors – liked working with technical concepts and gravitated towards them.
Champions – were drawn towards customers problems and solving them; extroverts
Implementers – enjoyed working with well defined/tangible problems
Innovators – seem comfortable thinking broadly in terms of both customers/tech – systems thinkers. They’re introverts (on the MBTI scales).

Innovators tended to have strong perspectives on the role of business in technology but the other 3 roles didn’t have much.

Regarding preparation, inventors tended have Ph.D., but narrow. Champions had varied technical knowledge, etc.

Motivation: inventors driven by advancing state-of-the-art . Champions want to satisfy customers and make sales. implementers enjoy their work. Innovators want to help people.

Politics: inventors tend to use data as the basis of their arguments. Implementers are primarily administrators but don’t like politics. Champions are aggressive in selling product ideas to the customer and management. Innovators work the politics behind the scenes.

Process: inventors develop design requirements. Implementers get their ideas from others. Champions are usually not involved in the development and delegate the execution to others. Innovators can do the process steps, but because of time constraints, may often hand it off to others.

How should we organize better to accommodate the innovators? How do you find them, manage them, develop them, and enable them effectively? That’s what the researchers are looking at now. Hopefully next year she’ll be able to come back next year to share what’s she’s learned from the 20 innovators she’s studying.

She’s developing a scale to help a company identify the innovators in their company.

Some of them have titles like Research Fellows. Typically what they do is they find managers that understand how they need to work and they stick with them for a long time.

Do innovators get along with other innovators? Yes, they do. They know that big egos don’t fly in an organization, so they like to get to know people. They also have very unusual hobbies, for instance one guy has a hobby in sniping.

The Antecedents and Consequences of Procedural Justice in NPD Teams (Dayan)
Presenter didn’t show up, better luck next time.

PDMA 2006 Research Forum - 10-22-06 Morning (Track 2)

Emphasizing customer advantage or competitor advantage (Rijsdijk, Langerak, Hultink)
Hypothesis: customer-oriented firms place a high priority on the creation of customer value. Whereas, competitor-centered firms have unstable strategies. A competitor-orientation results in products that are similar to existing products.

The study (maybe read the write-up if you’re interested) recommends when to emphasize benefit statements that are superiority-oriented vs. advantage-oriented. The difference? Both express a benefit, but a superiority-oriented benefit statement explains how the product is better than a competitor, rather than how the product solves the user’s core problem.

This survey looked at about 140 data points, and I was told by another researcher that it was a low response rate, but don’t take my word for it.

Information Search Strategies, Market Knowledge Dimensions, and NPD performance (Atuahene-Gima, Toilo, Luca)
These researchers wanted to determine how market knowledge search strategies impact NPD performance.

Market Knowledge = Customer Knowledge + Competitor Knowledge

Among knowledge acquisition process, information search is the “most consciously pursued by mangers on a day-to-day basis” (Huber 1991, p. 97)

Firms vary in the degree to which they search in the domain of their prior knowledge (local search) and/or in new domains (distal search)

Distal search and local search are not two ends of a continuum.

Functional learning occurs within communities of practice which specializes around specific problem solving activities.

They surveyed 750 high-tech firms in China.


Local search is the stronger antecedent of both depth and breadth of market knowledge.

Distal search leads to market knowledge breadth but not to market knowledge depth.

Broad market knowledge needs to be complemented by broad technology knowledge.

Saturday, October 21, 2006

PDMA 2006 Research Forum - 10-21-06 Keynote

Perspectives on the future of innovation research (Raji Srinivisan)
NPD is a complex, risky, process involving multiple actors. Despite risks, the rewards are high.

Much of the research has focused on new product innovations. But that’s a necessary but not sufficient condition for organizational innovation. Raji Srinivisan proposes a borader view of organizational innovation. It’s time to look beyond products.

Organizational Innovation includes:

Integrated view of offerings to include services
Industrial design in innovation
Innovation failures
Marketing innovations
Innovating for international markets

Service Innovation
Some of the research in services is coming from Operations Research. Does the stage gate process apply to service innovation? How about the rest of the best practices we know from product innovation, can they be applied to service innovation?

Service firms don’t have R&D budgets. Where is the innovation happening if not in an R&D group? If service firms could answer these questions, would they be able to accelerate innovation the way we do with product innovation?

Industrial Design Innovation
For industrial design, what can you do to integrate marketing, design, and product development? What is design exactly? It’s adjusting the product and product delivery to maximize user experience.

Innovation Failures
It’s easy to look at successes because there’s more information available. It’s an important area of study because most new products fail. Yet, “failure is the only opportunity to begin again more intelligently” (Henry Ford). Can we create a body of knowledge to identify patterns?

Here’s something that occurs to me…if Fail Early Fail Fast (FEFF) is important to finding a success, then if we studied the failures, could we learn something about failing faster, cheaper?

Marketing Innovations
Parity in product performances creates a shift toward other changes in the marketing mix. For example, innovativeness in pricing, promotion, and distribution channels. Brand managers do this all the time. Can the body of innovation research help brand managers innovate on the marketing mix?

Innovating for International Markets
The developed market is saturated, single-digit growth rates. International is the opportunity for market growth and profitability.

Should product development firms operating in multiple countries decentralize their R&D efforts or go with a hybrid model?

PDMA 2006 Research Forum – 10-21-06 Afternoon Track 2

Success measures for product development programs (Manion, Cherian)

Last year they presented on PD projects, but this one is on programs.

There have been two types of success measurements programs often use: growth-orientation vs. efficiency-orientation.

Similarly, there are three categories typically used to characterize PD efforts: Prospector (“first mover”), Analyzer (“early follower”), Defender (“efficiency expert”).

This study’s survey looked at the type of measurements chosen based on how the firm is characterized. They hypothesized the following mapping:

  • Prospector = Growth-Oriented Measurer
  • Analyzer = Efficiency-Oriented Measurer
  • Defender = Efficiency-Oriented Measurer
The data supported this for the most part, but it found the middle mapping was incorrect, suggesting that the mapping should be:
  • Prospector = Growth-Oriented Measurer
  • Analyzer = Growth-Oriented Measurer
  • Defender = Efficiency-Oriented Measurer

The study also recommends the following measurements based on the program type:

  • Prospectors: opportunities, new profits, new sales, growth
  • Analyzers: strategic fit, new profits
  • Defenders: success rate, 5-year objectives, efficiency

They surveyed 222 PD professionals.

The Comprehensive Strategic Positioning Framework (Blankson, Hirunyawipada)

The purpose of this study was to provide managerial guidelines for strategic positioning.

Positioning has been defined in two ways. One school of thought is that positioning is about how you describe your product so it resonates with consumers. Another school of thought is that positioning is about adjusting customer beliefs about the benefits and qualities of an offering so they desire it. This was one of the most interesting learnings today because it represents such as a clear difference in the meaning of a word that we as practitioners use all the time.

This study takes positioning to be both of these things.

Two frameworks were combined into the Comprehensive Strategic Positioning to frame the managerial guidelines Brand Concept Image Management (BCM), and General Positioning Framework (GPF). Here were the problems identified with the two frameworks that had to be addressed by the new one:

  1. Positioning over time
  2. Aim of positioning

Aim: effectiveness of the strategy should be based on convincing the buying community.

Positioning strategies:
Top of the range
Country of origin
Brand name

Managing Fail Early Fail Fast (FEFF) Decisions in NPD (Darroch, Schmid)

Because the drug development process is so long, the key is to fail early, before it gets too expensive. This is a generally accepted idea in big pharma (and other big firms doing NPD). But is FEFF a good strategy for small companies that can’t really afford to fail?

To achieve success with NPD, you have to look at a large number of opportunities because the chance that any one will pay off is low. The way to minimize costs, given this strategy, is to fail fast. Knowing sooner, though, requires a lot of information, quickly. That’s why innovation project teams need a steady stream of insights to determine viability quickly and cost-effectively.

A question I asked was: what are the keys challenges to putting FEFF into practice? They answered that nobody wants to stop their project. These side projects can continue longer in large companies than in small.

This was the most interesting presentation so far.

Pioneer vs. Follower: The time-to-market dilemma (Voigt, Brem, Scheiner)

If you have market insights, it’s more likely the product will be a success.

PDMA 2006 Research Forum – 10/21/06 Morning (cont.)

Operationalization of the Garcia and Calantone innovation typology (Darroch, Miles, Jardine)
This session was best summarized by this quote from their write-up: “Our findings demonstrate that no matter what type of innovation a firm pursues, those within the firm need to have a clear and deep understanding of consumer needs (both explicit and latent) and the broader market conditions that may impact upon current and future consumers.”

Understanding Firm Innovativeness (Calabretta, Durisin)
Research question: How can we measure whether firms are innovative or not?

This is a particular question for Italy, where the researchers are from, because patenting activity is lower than all other European countries there and most companies have fewer than 20 employees.

Firm innovativeness was defined as the propensity of the firm to innovate and at the same time the capability of delivering successful products or services.

The results are only preliminary, but it suggests that having an innovative corporate personality is not very important compared to attention paid to strategy, planning, and making product-related decisions.

Going beyond technology: constituents of newness in ‘content-specific experiential products’ (Ece)
This researcher wanted to challenge what ‘new’ means for a product. iPods are the typical example NPD researchers care about. But what about the non-technological products like books (Harry Potter), movies (Da Vinci Code), songs. They are experiential. They are successful, proliferate, but researchers in NPD ignore them.

Experiential products – dominant emphasis on consumption experience, main benefit is pleasure and hedonic value.

Utilitatarian products – utility is the emphasis

What are the elements of newness or experiential products? She consulted with literature experts and identified a few components of newness of experiential products, but I couldn’t get their differences.

One thing she reports is that it’s better to play with the consumer’s expectations a little than go with something completely new. It makes a less risky purchase, which speaks to the success of familiar pleasures and subtle newness.

Why not ascribe an economic value to pleasure so that experiential products can be treated like utilitatarian products? After all, eventually, they do all come back to economics because you have to pay for them.

Development of Market Efficiency Technological Innovation (Harmancioglu)
Nukhet won the PDMA Dissertation Award last year. She came this year to present the conclusion of the research that the award funded.

What’s really interesting about this research is how much it leverages the quantitative analysis of existing literature asking the same questions. This type of research is called “meta-analysis”. Here were some of her conclusions from one of her studies:

  • NPD process execution is the key to achieving positional advantages in the market. Being proficient at ideation, for instance, will affect your end-product’s performance.
  • Development speed reduces the degree of the customer need met.
  • Project formality provides cost efficiencies, but project climate (e.g. cross-functionality) increases speed—both lead to better execution. So collaborate, but not too much.
  • Product advantage is more important as the market demand shrinks and the competition becomes more intense.

PDMA 2006 Research Forum – 10/21/06 Morning

I’m attending the Product Development Management Association (PDMA) 2006 Research Forum today. I learned a lot here last year and have high expectations for this year. Here’s a log of interesting research results I’ve learned about this morning.

Product review practices (Schmidt, Sarangee, Montoya-Weiss)
These researchers investigated the product review practices for new product development (NPD). They found that the quality of the review practice is what predicts the success of innovation, more than the number of review checkpoints in the process. The quality of the review practice was self-measured though.

Impact of IT usage in NPD performance (Barczak, Sultan, Hultink)
Types of IT tools investigated included desktop software, web-based tools. These tools are supposed to increase collaboration, reduce NPD cycle times, etc.

Interesting conclusions: IT appears to be a way to create empowerment for NPD teams. In other words, if you use IT tools, you can give team members more autonomy. Also, you can’t expect immediate results, it takes time to embed IT tools into a NPD process.

NPD performance was measured as product quality, speed to market, budget, and market performance. The types of IT tools covered included communication & collaboration, product development, project management, information & knowledge management, and market research & analysis.

Using sales force intelligence in B2B NPD (Bonney, Kahn)
This project sought to answer whether listening to your sales force is a wise decision or not. The study suggests that it depends on how the information is used.

They also found that during idea-generation stage, NPD teams will seek information from sales via tacit monitoring. It’s only later that NPD teams tend to seek out information more explicitly. However, NPD teams tended to prefer to talk to a handful of sales people, an inner circle, so to speak.

Effect of application selection (Thongpapanl, O’Connor, Sarin)
They wanted to know how R&D teams choose applications to explore for major innovations. By application they were referring to the deployment of the innovation to a specific purpose, to solve a specific problem.

Initially they observed that it was impossible to explore all application possibilities and that application exploration approaches were suboptimal.

They surveyed 2000 NPD managers and R&D individual contributors from large companies. The survey had a response rate of 11.5%.

The study showed that the amount of time you spend on application exploration positively impacts the eventual business impact.

They define the following term: Application Market Exploration (AME).

Coffee Grounds, Flying Bathroom

I’m flying out to the annual Product Development Management Association. Getting up to stretch my legs, I took a trip to the lavatory where I was amused to see a bag of coffee grounds hooked to the coat hanger on the door. I finished up my business, and still smiling from amusement, I exited the lavatory and asked a flight attendant what the heck was that bag of coffee grounds doing there?

She said it was to freshen the air in there. I laughed and asked her why they didn’t just use an air freshener. She said United doesn’t supply them with air fresheners so they’re forced to use things like the bag of coffee grounds. “Maybe I should start a business,” I joked. “Yes, you should” she responded, chuckling, as I walked back to my seat still pondering and smiling in amusement.

Yet another example of Eric von Hippel’s astute observation that users are a wonderful source of innovative ideas. I knew that airlines have been in financial trouble and that this trend would be creating opportunities for innovation, but not being a flight attendant or a pilot or a mechanic who’s actually on the ground (or in the sky as the case may be), I wouldn’t have known what the problems were or what resources existed close at hand to solve the problem.

Thursday, October 12, 2006

Business Model Innovation

Business model innovation has captured the attention of executives tasked with achieving growth in the face of increasing competitive pressure. Business model innovation suggests that if you took an existing product and repackaged how you sold it, you can hold off competitive pressures and even capture entirely new market segments. For obvious reasons this is attractive to companies, but when a company’s brightest are tasked with finding ways to innovate their business model, they’re often forced to make it up as they go along.

What’s needed is a how-to manual for business model innovation.

Below I explain what a business model is and how it can be differentiated by comparing Netflix with Blockbuster. After giving a high-level overview of business model innovation, I’ve provided a list of steps to go through to arrive at business model transformation.

Netflix vs. Blockbuster, a comparison of business models
Suppose you’re over at a friend’s house for dinner on a Saturday evening. After dinner, you settle down in the living room to watch a movie. The movie, however, turns out to be a real bore and as your mind wanders, you begin to wonder…did my friend rent this from Netflix or Blockbuster?

From just watching the movie, you wouldn’t know where it came from. Both companies sell exactly the same product. So what makes these companies different? The answer: their business models.

What makes up a business model? Let’s answer that by reasoning through why anyone would buy from Netflix when practically every town in America, big or small, has a Blockbuster. The first person to rent from Netflix must have done so for a reason. Netflix offered some advantage over Blockbuster; it solved some deeply-rooted, unmet need among Blockbuster consumers.

A business model can be thought of as the way that a seller transacts with a customer. Some business models are less consumer-friendly than others. Netflix picked up on the discontent Blockbuster customers felt about late fees and they offered a business model that got rid of them. There are now many happy Netflix customers, and I am among them.

But is the Netflix model the be-all end-all of business models for DVD rental? To answer that question, we simply need to ask whether or not consumers have any unmet needs with regard to the way they do business with Netflix.

There are indeed many Netflix customers who are very unsatisfied because of a problem they are calling “throttling.” In fact there is a whole blog out there called www.hackingnetflix.com that has helped expose how Netflix becomes gradually less responsive to its most avid users, a problem that has become known as “throttling.”

In addition, many customers complain about discs arriving scratched. Now with the Blockbuster business model, a customer can just go back to the store to get another copy and finish watching the movie that night. With Netflix, if it’s a Friday night, you’re not going to get to see the rest of that movie until Wednesday. Bummer.

As illustrated, the definition of a business model is the way a supplier transacts with its customers. Business model innovation focuses on addressing unmet needs on the part of consumers who dislike some aspect of an existing business model for an existing category.

As with so many other types of innovation, business model innovation comes down to what my dear old professor Eric von Hippel taught me at MIT: market needs drive innovation.

Business Model Innovation: How-To
How then, can companies go about innovating their business model? I would like to invite my fellow innovation bloggers to share their ideas, but I think business model innovation consists of the following steps:

  1. Identify the market category
  2. Gain insight into what the market dislikes about incumbent business models for that category
  3. Scout for business models that address those problems in adjacent industrie
  4. Take action

There are different ways of obtaining the information needed for each of these steps. The market category in question would be your own market category if you’re seeking to innovate on your own business model. But if you’re an entrepreneur that’s not tied down to any existing product or market, you could pick any market category where you’d like to investigate opportunities for business model innovation.

The second step involves gathering insights about unmet needs. Ethnography is one way of doing it, if you have the time and resources. But more and more, people are turning to the Internet for those types of insights.

The third step is very much like technology scouting. That is to say, a business model is just another form of intellectual property, or I-Stuff, as Suzanne Harrison describes it in her new book, Einstein in the Boardroom.