Category: Management

Clay Christensen is back with his new book – “The Innovator’s Solution”, a kind-of sequel to “The Innovator’s Dilemma”. Boston Globe writes in an article on the book and the author:

[The book] is intended as an answer to the question Christensen posed six years ago: How can business leaders create sustainable growth for their companies at a time of continuous change and innovation? Christensen and Raynor set out to demystify innovation so that established companies can capitalize on changes and deliberately create disruptions. Among the tactics they recommend:

– Target only customers and markets that are unappealing to established competitors.

– Pursue customers at the low end of a market or, even better, “nonconsumers” who don’t even use a product.

– Help customers find simpler, more cost-effective solutions, rather than inventing new problems for them to solve.

– Be impatient for profits, but patient for growth.

– Work on new ways to keep your company growing while it is still robust .

Financial Times had an article on Christensen recently. A quote from him, which captures the essence of his solution: “The power to capture attractive profits always shifts to the activities in the value chain where the immediate customer is not yet satisfied with the performance of available products.”

Forbes has an excerpt from the book:

How do you create products that customers want to buy–ones that become so successful they “disrupt” the market? It’s not easy. Three in five new-product-development efforts are scuttled before they ever reach the market. Of the ones that do see the light of day, 40% never become profitable and simply disappear.

Most of these failures are predictable–and avoidable. Why? Because most managers trying to come up with new products don’t properly consider the circumstances in which customers find themselves when making purchasing decisions. Or as marketing expert Theodore Levitt once told his M.B.A. students at Harvard: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”

Much of the art of marketing focuses on identifying groups or segments of customers that are similar enough that the same product or service will appeal to all of them. Managers need to segment their markets to mirror the way their customers experience life–and not base decisions on irrelevant data that focus on customer attributes. Managers need to realize that customers, in effect, “hire” products to do specific “jobs.” That’s one reason why retail formats like Home Depot and Lowe’s have become so successful: Their stores are literally organized around jobs to be done.

HBS Working Knowledge writes about how to prepare for a speech:

Phillip Khan-Pami, a coach and competition-winning speaker himself. Khan-Pami suggests beginning by identifying your core message: “When you have completed your presentation or speech, what will people remember? What will they take away with them, to apply and change their ways, and one day perhaps even thank you for? What one sentence will correctly sum up your entire presentation? That’s your Core Message…Make no mistake: Your listeners will take away a core message of sorts. They will carry away an impression of what you were saying. It may be complimentary, it may be less so. It may be about you and your delivery, or it may be about your content. If you want them to receive and carry away the right messageyour Core Messageyou must first identify what you believe it to be and write it down.”

Once you’ve developed that one-sentence summary of what you want to say, you’re ready to brainstorm supporting ideas, arguments, anecdotes, and information. Then, Khan-Pami advises, test everything you’ve come up with against the core message. Ruthlessly eliminate anything that doesn’t support your message.

The article provides a number of formats to structure a speech:

PREP, which stands for PositionReasonExamplePosition: The idea is that you state your claim (which should sound a lot like your core message) and then give your reasons for it. Follow that with a compelling example, and close by restating your position.

PastPresentFuture, which takes the storyline of your idea and presents it in chronological form.

ProblemCauseSolution. This structure works well for business arguments and situations. You state the problemdeclining sales, sayand then analyze the cause. You follow the analysis with your recommendations for a solution.

AIDA, which stands for AttentionInterestDesireAction, works best when you’re trying to persuade someone of something. First you grab their attention with a statistic or anecdote or claim that is sufficiently surprising to take your audience away from its concerns to yours. Then you raise the audience’s interest by stating the benefits of the position you’re advocating.

Tellx3, which, despite its trendy appearance, is actually the most conventional of structures. It stands for “Tell ’em what you’re going to say, say it, tell ‘ em what you said.”

[via John] From CIO Magazine. “Since IT work is inherently creative, effective leadership of IT workers means facilitating work that is often chaotic and goals that are rife with ambiguities. The context of leading an IT organization includes aligning IT projects with business strategy, conveying direction to IT employees that’s consistent with that strategy, and keeping IT employees focused on end user needs.”

The challenges for Sun continue. News.com and Knowledge@Wharton offer advice for Sun.

Writes News.com:

In essence, technology analysts and customers say, there are two Suns: One is the financially stressed company that depended excessively on Unix servers, became bloated on dot-com sales, hired more workers than it needed and, admittedly, signed too many expensive real-estate leases. The other is the technological innovator–known for spawning networked computing and Java–that is driving the latest industry advances in hardware architectures and on-demand systems.

If the Sun of old is fading into the distance, what will the new Sun look like? Perhaps the answer can be gleaned from another large computer company that was once thought to be headed for extinction: IBM.

When sales of Big Blue’s proprietary mainframe and minicomputer systems began to tank around 1993, the company poured its resources into services–rather than products–that would help customers do business. A decade later, the IBM Global Services brand is an industry powerhouse.

With its N1 initiative, Sun wants to gradually move away from being a pieces-parts supplier and become essentially a giant systems integrator–a middleman role that makes disparate hardware and software work together, regardless of brand. Sun argues that it can better manage internal systems and reduce the artificial switching costs that have dominated technologies for years, Greg Papadopoulos, Sun’s chief technology officer, said in an interview with CNET News.com.

In the process, Sun will reach into a deep stockpile of technologies that it has developed for years and finally turn them into commercially viable products. Some of its inventions, such as Jini–Java-based software for linking devices over a network–and related technology Jxta have languished as Sun struggled to devise a market strategy for them.

Adds K@W: “Its reliance on big, powerful machines is holding Sun back against other competitors as the industry moves to using more microprocessors, according to Wharton faculty and analysts.” The article has opinions from a wide cross-section of people.

Bill Gurley writes about the consumer electronics industry:

Two critical dynamics are occurring in the consumer electronics industry as a result of digitization, and both unfortunately lead to commoditization. The first: Semiconductors are increasingly incorporating the majority of the features and functionalities by which any manufacturer would differentiate their product.

The second key dynamic mirrors the binary code that underlies all digital goods. The cold fact of the matter is that most digital goods either work or don’t work. You lose the subtle continuum of quality that exists in an analog world. The reason relates to the first dynamic in that most of the “value added” is now at the semiconductor level. The complicated motors and servomechanisms that inherently led to quality differentiation are slowly going away.

With product differentiation on the wane, distribution will play a greater role.

As we look toward the future of the consumer electronics industry, the digital hand will ensure two realties. First, consumers will be blown away by the incredible products they are able to buy at shockingly low prices. Second, companies will be blown away by how incredibly hard they have to work in a shockingly competitive industry. Never forget that the undisputed leader of the PC industry has a supply chain and distribution advantage, not a technological one.

The point about distribution is an important one. I think something similar will happen in software also – especially in emerging markets. As open-source based solutions become more prevalent, building a distribution network will become more critical.

Renee Hopkins has a compilation of notes from the Innovation Convergence conference.

[One of the presentations was on] Customer-Centric Innovation: Turning Consumer Pain Into Innovative New Products by Tom Kuczmarski and Scott Lutz.

Tom quoted a 2003 best practices study his company did: 85% of CEO respondents said conducting customer problem/need identification research prior to ideation is the most important driver of new product/service success in their organizations.

A main reason why research for new product development should focus on consumer needs and an understanding of consumers lives rather than product and service attributes is that the resulting ideas are more likely to be true breakthroughs.

This makes absolute sense to me. If you focus on needs, youll come up with new products that meet those needs. These products may or may not resemble current offerings, but at the very least they shouldnt be so far out in left field (a common problem with unfocused new product development efforts) that they dont still meet those needs, since that was the objective.

On the other hand, when you focus on researching what consumers do and dont like about an existing product, the best you can expect is incremental improvement suggestions.

One more point Tom made about starting with pain your new products are more likely to be profitable if they enable the solution to a problem on which consumers place a higher need intensity.

McKinsey Quarterly (via News.com) writes:

During high technology’s boom years in the late 1990s, companies across many sectors tried to emulate their high-tech counterparts. The business models, the creativity and innovation, the speedy decisions, the headlong growth in revenues, profits and shareholder value–slower-growth industries aspired to all these blessings.

But now, with no technology rebound in sight, high-tech vendors must look to the business practices of their former admirers in slower-growth industries such as retailing and banking. There they will find lessons about increasing productivity and using the improvement strategically to expand their market share and improve their financial performance. The challenge goes beyond simple cost cutting; it’s about changing the ratio of inputs to outputs–the value of what companies put into a production process compared with what they get out.

As technology vendors target productivity, they should take a cue from high-performing companies in slow revenue growth sectors such as retailing, whose 5 percent annual productivity growth from 1993 to 2000 was more than twice the rate for U.S. industry as a whole, and wholesaling, which also increased its productivity rapidly during the 1990s. In these sectors, where the demand environment is more mature, companies must perfect the art of raising productivity year after year–not as a one-time event–and exploit that growth for strategic gain. Although they also search for innovative next-generation products and services, they relentlessly identify and close gaps with industry best practices in process efficiency and pursue breakthrough productivity gains by investing in business innovations.

Rather than relying on a “silver bullet,” the productivity leaders have adopted an integrated, end-to-end approach–including process innovation and redesign, the targeted application of IT, carefully crafted outsourcing arrangements and offshoring. They generate gains from a combination of organizational change, targeted investment and the ability to measure the right things. In contrast, companies that bet the farm on major investments such as ERP systems without bothering to improve processes, organizations and strategies may be disappointed. The integrated approach is characterized by short-cycle, well-defined initiatives that are intended to realize year-on-year productivity gains.

[via Veer and Anish] Ubiquity has an interview with Andrew Hargadon, the author of “How Breakthroughs Happen: The Surprising Truth about How Companies Innovate”. Andrew has some interesting things to say about how innovation happens:

Innovation is the practical exploitation of any novel idea. Novel ideas can be inventions in the strict definition of the term, which means they didn’t exist before, but most often they’re not. Instead, they’re based on taking an idea that’s been developed somewhere else — or combining a number of existing ideas — and introducing them to a market that hasn’t seen those combinations before.

By focusing on recombining existing ideas — rather than inventing new ones — we can better exploit the sources of innovation and, at the same time, increase the likelihood of their impact. It’s much easier to think of things that have already been done and, when you introduce those ideas into new markets, they are already well developed. The trick is putting yourself or your firm into position to be the first to see these opportunities. Highly successful firms have developed a set of innovation strategies, called Technology Brokering strategies, that enable them to move between different worlds, to see how ideas from one market’s past can be used in new ways in another market.

[There are two critical two roles of brokering.] The first is to bridge different worlds by moving between industries, markets and knowledge domains and seeing the range of existing ideas that are already out there. The second role is to build a new community around the ideas to attract not only customers but also competitors and suppliers. Don’t focus on inventing and hoarding the rewards of that invention but instead on creating a community that wasn’t there before.

It’s much easier to recognize the similarities between two things (analogy) rather than come up with something that you’ve never thought of (invention). Solving problems with analogies means having an open mind, it means having seen many different things, and it means admitting that, whatever problem you’re attempting to tackle right now, you’re likely neither the first to try nor the most qualified. Somebody somewhere else has already solved this problem. Find out what they did and build on what they created.

WSJ has a story on the remarkable turnaround at Sohu.com, one of the Chinese Internet portals – the company’s stock price has risen more than 1,300% since August 2002. How did it do it? By leveraging SMS.

Sohu’s strategy was simple: It moved much of its content, such as dating services and chat rooms, from the Internet to the SMS platform for mobile phones. That provided a basic but essential benefit to Sohu and other Chinese Web portals making the same move — allowing them to bill users for content by adding charges to their mobile-phone bills. Suddenly, the content that they had been giving away free on their Web sites could fetch a modest sum on mobile phones. At first, Sohu wasn’t very serious about SMS, but when the company saw the service’s earnings potential, it decided to pursue SMS users at full throttle.

At a cost of about a penny an SMS message, the service might not seem like a money maker. But the main reason SMS works in China is its low cost. An SMS message costs about 80% less than one minute of voice transmission. Another reason SMS proved so successful is that the dull-edge technology can be used on even basic wireless handsets, which account for more than 90% of the Chinese market.

While the rest of the world is investing in higher-value technologies, such as multimedia messaging or streaming video delivered over next-generation mobile networks, China’s infatuation with stodgy SMS shows no sign of cooling down. About 40 million of China’s more than 200 million cellphone users sent out more than 80 billion SMS messages last year, creating such a huge pie that even a small crumb can be enough to drive revenue.

In fact, the turnaround in the fortunes of the Chinese portals (Sohu, Netease and Sina) is perhaps the most remarkable Internet story of the past couple years. Their stock proces are up 40-100x in the past 18-24 months. Besides SMS, the other two factors have been an increase in Internet advertising and gaming.

WSJ writes about how Bharat Forge’s growth has been a proxy for the growing Indian manufacturing sector:

Can India become a hot spot for auto-parts manufacturing?

Until recently that idea seemed far-fetched. After all, the country isn’t known for either world-class manufacturing know-how or cost competitiveness. But one company, Bharat Forge Ltd., is starting to change that.

The auto-parts maker is jump-starting its operations — and the country’s auto-parts industry — with a novel approach for India: applying the brainpower and skill of the country’s more than two million engineers to the manufacturing sector.

By improving the quality of its parts through better design while restructuring its finances to keep labor costs in check, Bharat Forge is able to go after global customers who would not have taken it seriously just a few years ago. It’s fast becoming a supplier to auto makers like Ford Motor Co., General Motors Corp. and Toyota Motor Corp., which have to cut their own expenses amid an increasingly competitive market by obtaining cheaper parts abroad.’

Bharat Forge “stands out as an example of restructuring,” says Ashish Gupta, an analyst with CLSA Asia-Pacific Markets in Bombay. “They are simultaneously improving the range and the quality of their products and cutting costs to improve the economics of their business.”

with a focus back on auto parts, Bharat Forge has set out to modernize the way it does business, which has, in turn, allowed it to venture into markets abroad. Key to this approach has been making better use of India’s abundance of skilled but low-cost engineers to improve products.

“It was all based on leveraging the high-quality human capital that is India’s main competitive advantage,” says Mr. Kalyani.

Bharat Forge has merged “blue-collar workers and our white-collar workers and [has] everyone working on the floor of the plant,” says Mr. Kalyani. “We also put more high-quality [workers] on the shop floor.” Having designers and production people work together has allowed the company to improve both the speed and the quality of production, he adds.

Perhaps, the secret to taking on China in manufacturing is to combine intellectual capital with human capital in the workforce – and India has plenty of both.