Failing to fail…and then accelerating our success

Alphabet’s (Google) Project Loon team has an interesting blog post with some interesting thoughts for R&D managers trying to develop disruptive innovations or moonshots.

When you set out to explore a brave, new, weird place that no one’s ever explored before, you bring along a list of things you hope are true and right. And most of the time, you discover that you’re wrong about a lot of those things — which is why I spend so much time talking about failure being a necessary condition of moonshot-taking. I want to help our teams experience this as valuable learning rather than dispiriting setback.

We need to embrace risks and possibility of failure when targeting disruptive innovation. But we also need to manage risks…
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Steve Jobs: Innovation is the only way to succeed

INSEAD Knowledge has published an interview with Steve Jobs from 1996 which has a few very important points for R&D managers: Innovation is the only way to succeed – you can not cut costs to get out of problems.

“All I can say is I think it was true back when we built Apple and I think it is just as true today which is innovation is the only way to succeed in these businesses. You can’t stand still.
You can’t cut expenses and get out of your problems. You can’t cut expenses and get out of your problems. You’ve got to innovate your way out of your problems.

image from Insead Knowledge

So, lets dig in…
We have discussed many of these points in the past, but this interview provides a few more details. First is the recurring theme of user-centric design – products should not require customers to learn underlying technology:

Well, one of the reasons I’m so interested in graphics is that it makes things accessible to people without them having to know how it works. So as an example, the Macintosh was really that – we used graphics to make it easy to use; it was the computer for the rest of us. And you didn’t really have to know all this computerese to use it because of the great graphics and user interface.

Even more interesting is the fact that Jobs took the same approach with Pixar: Movie goers should be able to enjoy the experience without worrying about 10 years of R&D that went into creating the movie. We have discussed this in detail in the post about focus on your niche.

And it’s the same way with Toy Story at a much higher level. An audience between 80 and 100 million people will hopefully see Toy Story by the time it rolls out throughout the world, and yet none of them had to read a manual before they saw the movie to appreciate it. None of them had to understand the technology and the ten years of R&D and investment that went in to be able to create that movie to enjoy it, and that’s what’s so wonderful.

Another foundation of successful R&D management is a long-term vision. Steve Jobs again demonstrates his ability to think long-term. He was working towards removing keyboard input back in the mid 90s:

And I see more and more of that infusing society where you have a tremendous technology but it has a face which is very approachable and you don’t have to understand the technology to interact or use the product….

You know I think that’s the potential of the Internet. We’re certainly not there today. Typing an H-T-T-P slash slash colon w-w-w, you know, is arcane. I mean, you shouldn’t even need a keyboard to use the Internet but we still do. And I think we’ll get to where it really is very simple, but we have a few years to go.

The next lesson for us R&D managers is that of hands-on involvement. An engaged leader is critical to motivating teams and delivering innovation (by overcoming problems such as valley of death). Jobs was not had the vision of where products need to go, he was involved in detailed technology development and the business models that need to be developed to support the new technology. In this case, he was developing a vision about iTunes in mid-90s…

We look at the internet and it looks very exciting to us, but we don’t see how to make any money from it. We haven’t seen any business models emerge where we can put content on the Internet and end up being rewarded for that. And since our talented people always have opportunities to work on things where we do get financially rewarded, we’re not about to take them off that and put them on the Internet until we see a business model that makes sense. And I think we will, you know, in the next one to two years.

We have a lot of interesting posts about innovation management…

Update on Sony’s Future Plans

Two months ago, Sony’s president to-be had announced his plan to turn Sony around. Now, the new President has actually reconfirmed his plans and provided a few more details (Sony CEO wields ax, sets turnaround targets):

via engadget

The plans seem to not have changed much:

Key initiatives to transform the electronics business are:
1. Strengthening core businesses (Digital Imaging, Game, Mobile)
2. Turning around the television business
3. Expanding business in emerging markets
4. Creating new businesses and accelerating innovation
5. Realigning the business portfolio and optimizing resources

The main addition to the strategic plan announced earlier is numerical goals. However, there is not much more detail compared to what we had discussed earlier (except the loss of 10,000 jobs). There is no discussion about how the TV business can be turned around or how Sony plans to reenter OLED TV market after exiting it just a couple of months ago. Nor is there any explanation of why innovation equates to medical devices… No wonder the financial community is underwhelmed:

“I can’t make out a growth story here. It’s good they’ve announced numerical targets, but you can’t tell how they’re going to achieve them,” said Kikuchi Makoto, CEO of Myojo Asset Management.

There is also no clear roadmap here that can drive R&D planning or help achieve these goals.

“It doesn’t feel like an aggressive makeover,” said Tetsuro Ii, president of Commons Asset Management, who oversees $33 million of assets and doesn’t hold Sony stock. “You can’t really see the roadmap for how they’re going to revive the electronics business, nor how they’re going to create new value.”

The full strategy presentation can be found here.

How to Be More Creative

Wall Street Journal article Jonah Lehrer on How to Be Creative has a list of items that can improve creativity (or innovation). :

Color Blue: Subjects solved twice as many puzzles when surrounded by blue.
Broaden the scope: Try to find ways to rephrase the problem so the solution space increases. For example, instead of driving, think of the problem space as transportation or movement.
Think like a child: People who imagine themselves as 7-year-olds are significantly better at divergent problem solving.
Laughing: People who are exposed to short comedy video are 20% better at insight puzzles.
Imagine distance from the puzzle: People are better at solving problems that come from far away.
Work at unusual times: People working at their least alert time of the day are more creative.
Relax: Being relaxed and not focusing too much on the problem improves creativity. As Einstein once declared, “Creativity is the residue of time wasted.”
Be persistent: Not every problem can be solved immediately. Keeping at it is important.”All great artists and thinkers are great workers,” Nietzsche wrote.
Measure progress: If you are getting close, work harder. If you have hit a wall, take a break.
Work outside the box: People who had a 5’x5′ box next to them did better at creativity problems.
Daydream: People who daydream are better at creativity.
Get diverse experiences: Steve Jobs believed creativity is about making connections. To make diverse connections, one needs to have a broad set of experiences.
Develop a diverse network: Another Steve Jobs approach to obtaining diverse experiences is to talk to a diverse set of people.
See the world: People exposed to different cultures or who have lived abroad are more creative.
Move to a metropolis: Moving to a larger city is shown to increase inventions.

We have discussed approaches to become more innovative, enhance team creativity, nurture disruptive ideas or engender innovation. We have discussed Steve Jobs methods extensively. Here is an excerpt from the article about Steve Jobs:

Steve Jobs famously declared that “creativity is just connecting things.” Although we think of inventors as dreaming up breakthroughs out of thin air, Mr. Jobs was pointing out that even the most far-fetched concepts are usually just new combinations of stuff that already exists. Under Mr. Jobs’s leadership, for instance, Apple didn’t invent MP3 players or tablet computers—the company just made them better, adding design features that were new to the product category.

He found that those entrepreneurs with the most diverse friendships scored three times higher on a metric of innovation. Instead of getting stuck in the rut of conformity, they were able to translate their expansive social circle into profitable new concepts.

Finally, not included in the article, but another way to improve ability to tackle problems is to consume some glucose.

Innovation at Bell Labs (The Idea Factory)

A couple of articles in the Oil and Glory blog describe innovation at Bell Labs (Book Review: Jon Gertner’s “The Idea Factory” and What Obama could learn from Bell Labs). Bell Labs, as the article points out, delivered many of the innovations that made modern devices possible:

“The name Bell Labs is synonymous with cutting-edge invention, winning seven Nobel Prizes (including by Energy Secretary Steven Chu) and turning out world-changing inventions like the transistor (pictured above), the silicon photovoltaic solar cell and radio astronomy.

It is interesting to see that even fifty years back, Bell Labs had a clear understanding that innovation requires new technology and manufacturing processes integrated into a system that provides concrete benefits for the user:

“It is not just the discovery of new phenomena, nor the development of a new product or manufacturing technique, nor the creation of a new market. Rather the process is all these things acting together in an integrated way toward a common industrial goal,” he quotes Jack Morton, a Bell Labs engineer.”

Even the leadership had a definition of what innovation meant that could be easily communicated. As we have discussed in the past, if the leaders do not know what innovation is, how are they going to encourage it?:

At Bell Labs, Mervin Kelly’s shorthand definition of innovation was something that is “better, or cheaper, or both.” If this succeeds, it will certainly fall into that category.

They even realized that the key to innovation is the ability to effectively address technological complexity and then mask it in the user experience.

“One of the more intriguing attributes of the Bell System was that an apparent simplicity — just pick up the phone and dial — hid its fiendish and increasing interior complexity,” Gertner writes.

So, what made innovation happen at Bell Labs? The most important factor was vast resources (probably funded by AT&T profits in addition to limitless government funding). These resources meant a large and brilliant work force had the freedom to pursue many problems. More importantly, they had a never ending stream of challenges that focused innovation:

Structurally, what defined Bell Labs was a large, brilliant, interdisciplinary work force that was supplied with freedom and vast resources and a never-ending stream of technical problems within the phone system that drew on the staff’s expertise.

As we have discussed in the past, innovation happens at the intersection of technologies. The Bell Labs model encouraged informal interactions between multiple disciplines and the abundance of resources facilitated experimentation:

In Bell Labs’ old days, an informal exchange of ideas (over lunch, during a stroll in the hallways, and so forth) was part of the innovation process. At universities and research institutions everywhere, it still is.

Furthermore, business processes were flexible enough to allow a variety organizational structures to nurture innovation in multiple ways – any thing from three person groups to very large teams:

With an invention like the transistor, Bell Labs used an orchestrated effort and a mid-sized team; but the silicon solar cell was quite different. Indeed, the latter breakthrough was serendipitous: Three men, each working in different buildings, somehow connected the right technology with the right problem at the right time. Meanwhile, later innovations such as cellular phone networks and the development of fiber optic systems required vast teams of hundreds of people. I think all these approaches — perhaps with the exception of the solar cell — were quite targeted, and are thus still viable today.

So what can we learn from Bell Labs? The author is uncertain. I think we would be hard pressed to show a business case for the level of investment. It is true that a lot of great innovations came out of the organization. However, we tend to forget major failures.

More important, perhaps, was that the Labs management at times made big errors in judging what technologies to pursue for the future. In my book I focus on two in particular: the waveguide and the Picturephone.

Also, it is easy to forget that not everyone working at the lab was an innovator and the management really knew how to enable success.

And I think that’s a mistake. Bell Labs was not a great experience for everyone employed there; there were internal politics, personality clashes, miscommunications, and every other problem that affects a big organization.

Much more importantly, the world has changed quite a bit in the last few decades and the idea of a walled garden for innovation probably will not be successful in the current environment.

Research efforts are expected to move faster today, and there seems to be a lower tolerance for failure, especially if any public funding is involved. Also, an ability (or willingness) to invest for the distant future, and to thus work with a new technology through an arduous and expensive development process, seems to be in shorter supply.

Courier: R&D Planning & Portfolio Management at Microsoft

I have been meaning to write about development and cancellation of Courier, an innovative tablet concept from Microsoft. The c|net article on the subject provides quite a bit of useful information – both about innovation management best practices and some opportunities for improvement. Courier was developed at Microsoft’s Skunkworks (Pioneer Studios). They invested quite a bit of resources in the concept (130 employees and $25M in funding). The concept was very well received (See Courier: First Details of Microsoft’s Secret Tablet in Gizmodo):

It feels like the whole world is holding its breath for the Apple tablet. But maybe we’ve all been dreaming about the wrong device. This is Courier, Microsoft’s astonishing take on the tablet.

However, they had to cancel the product because it did not fit into Microsoft’s product portfolio (See Microsoft confirms, kills Courier in one fell swoop — Engadget):

Well this is depressing. Word has just gone fluttering out of Redmond that work on the Courier project — a heretofore rumored dual-screen tablet which rightfully set the tech world ablaze — has been spun down by the company.

It is unclear which, if any, technologies developed as part of the innovation project ever got transitioned into the rest of the portfolio. The cancellation led to significant organizational strife and hard feelings. I think R&D managers can learn a lot from this event.

Courier’s death also offers a detailed look into Microsoft’s Darwinian approach to product development and the balancing act between protecting its old product franchises and creating new ones. The company, with 90,000 employees, has plenty of brilliant minds that can come up with revolutionary approaches to computing. But sometimes, their creativity is stalled by process, subsumed in other products, or even sacrificed to protect the company’s Windows and Office empires.

So lets dig in…
As we have discussed in the past (here and here), Microsoft’s portfolio process seems to be driven by senior executive champions. In case of tablets, there were two competing groups led by two senior executives working on competing products.

One group, led by Xbox godfather J Allard, was pushing for a sleek, two-screen tablet called the Courier that users controlled with their finger or a pen. But it had a problem: It was running a modified version of Windows.
That ran headlong into the vision of tablet computing laid out by Steven Sinofsky, the head of Microsoft’s Windows division. Sinofsky was wary of any product–let alone one from inside Microsoft’s walls–that threatened the foundation of Microsoft’s flagship operating system. But Sinofsky’s tablet-friendly version of Windows was more than two years away.

The senior executive ownership has some benefits: They get to ensure the product received the right kind of focus and resources to get it to market. The approach may help overcome the valley of death in innovation maturation. However, it also a key disadvantage: disconnected and conflicting projects in the R&D portfolio:

The Courier group wasn’t interested in replicating Windows on a tablet. The team wanted to create a new approach to computing.

The two lines of R&D were somewhat incompatible and underlying culture of executive champions prevented integrated portfolio management. Microsoft’s CEO, Steve Ballmer, had to call in Bill Gates to determine the path forward. Gates did a product review and did not come out in favor of the new innovation (because of how far it was from the traditional Windows/Office business model):

“This is where Bill had an allergic reaction,” said one Courier worker who talked with an attendee of the meeting. As is his style in product reviews, Gates pressed Allard, challenging the logic of the approach.
…
Within a few weeks, Courier was cancelled because the product didn’t clearly align with the company’s Windows and Office franchises, according to sources.

The cancellation had a significant immediate impact on Microsoft’s business:

Rather than creating a touch computing device that might well have launched within a few months of Apple’s iPad, which debuted in April 2010, Microsoft management chose a strategy that’s forcing it to come from behind. The company cancelled Courier within a few weeks of the iPad’s launch.

Furthermore, the move away from innovation had a long-term impact on the product development cycle and the product portfolio at Microsoft:

But using Windows as the operating system for tablets also implies that Microsoft will update the devices’ operating systems on the Windows time frame, typically every three years. Compare that to Apple, which seems likely to continue to update the iPad annually, a tactic that drives a raft of new sales each time a new generation hits the market. By the time Windows 8 rolls out, Apple will likely have introduced its iPad 3. Moreover, Amazon’s much anticipated Kindle Fire tablet, which goes on sale November 15, will have nearly a year head start on the Windows-powered tablet offerings.

So what if anything could have been done differently and what can we learn from this? First, many companies try to overcome the bureaucracy of a large organization by creating skunkworks (See Nokia). The idea was similar at Microsoft:

The gadget was the creation of Allard’s skunkworks design operation Pioneer Studios and Alchemie Ventures, a research lab that also reported to Allard. (The lab took the German spelling of “alchemy” to highlight the stereotypical Teutonic traits of structure and regiment it hoped to bring to its innovation process.)

However, Skunkworks like environments are hard to integrate into the overall culture. They tend to become quite segregated causing many of the innovations wither on the vine:

Allard created a fantasyland inside Microsoft where Apple fanboys could tinker on stylish products that would never see the light of day. They point to the opulent 36,000-square foot office of Pioneer Studios, headquartered in Seattle’s Pioneer Square, that featured huge open spaces, dotted with cushy Eames lounge chairs, angular white desks, blond wood floors, and exposed brick walls. It may have been 16 miles from Microsoft’s far more corporate Redmond, Wash., campus, but it was a galaxy away in terms of workplace design.

Clearly, Pioneer studios had envisaged this scenario and tried to form project networks that brought innovation cultures to the rest of the company:

He encouraged employees to seek out new colleagues with diverse backgrounds who could challenge Microsoft’s conventions and push the company to approach new opportunities in different ways.

Microsoft made an effort to implement a structured innovation management process:

Allard created Alchemie to focus on innovation process to make sure that the efforts of Pioneer were not scattershot. It studied best practices, both within and outside Microsoft, to “design a repeatable, predictable and measurable approach for building new business”

Additionally, they integrated some cutting-edge innovation management practices such as clear timeline for technology insertion and a stage gate process to ensure the innovation projects do not spin to far from reality:

In fact, one of the mandates of Alchemie was to look only at product ideas and business concepts that were no farther than three years into the future. The Alchemie book includes something of an innovation process road map that lays out four “gates” that ideas needed to pass through to move from incubation to product development. And a source said that Courier had made it through all four gates.

Another interesting concept they implemented was clearly defined purpose and freedom to explore new solutions:

“Infuse them with our purpose,” Allard wrote. “Give them the tools. Give them lots of rope. Learn from them. Support where they take you. Invite them to redefine The Tribe.”

The Courier team also had a well defined mission – Free Create – that further focus development:

The phrase at the core of the Courier mission was “Free Create.” It was meant to describe the notion of eliminating the processes and protocols that productivity software often imposes on workers.

The idea of Free Create was imbued into the entire development process – which is a great idea. Not sure of the business case for traveling to Milan to understand Moleskine…

The metaphor they used was “digital Moleskine,” a nod to the leather-bound notebooks favored in the design world. In fact, according to a few team members, a small group led by Petschnigg flew to Milan, Italy, to pick the brains of the designers at Moleskine to understand how they’ve been able to create such loyal customers.

One more interesting concept about Innovation Management was implemented: Disconnected prototypes allowing different subsystems to mature separately. This approach is advantageous in that it allows more experimentation and we have seen that experiments boost productivity. Steve Jobs followed a similar approach when developing the iPhone.

When Courier died, there was not a single prototype that contained all of the attributes of the vision: the industrial design, the screen performance, the software experience, the correct weight, and the battery life. Those existed individually, created in parallel to keep the development process moving quickly. Those prototypes wouldn’t have come together into a single unit until very late in the development process, perhaps weeks before manufacturing, which is common for cutting-edge consumer electronics design. But on the team, there was little doubt that they were moving quickly toward that final prototype.

It appears that the Courier team made significant progress (and used significant resources along the way):

Courier was much more than a clever vision. The team, which had more than 130 Microsoft employees contributing to it, had created several prototypes that gave a clear sense about the type of experience users would get.
It’s clear there were substantial resources behind the effort. The commemorative book, designed to resemble the journal-like look of the Courier, lists the 134 employees who contributed to the gadget’s creation. Moreover, Petschnigg writes on his LinkedIn profile page that he “managed $3.5 (million) seed funding, (and) secured $20 (million) to develop this new product category.”

However, there was a clear lack of coordination at the product portfolio level and there were no processes to align development plans across different product lines or R&D projects:

Early on, the group opted to use Windows for Courier’s operating system. But it wasn’t a version of Windows that any consumer would recognize. The Courier team tweaked the operating system to make sure it could perform at high levels with touch- and pen-based computing. What’s more, the graphical shell of Windows–the interface that computer users associate with the operating system–was entirely removed. So while it was Windows under the hood, the home screens bore zero resemblance to the familiar PC desktop.

This is a key problem with the Skunkworks innovation concept. A separate culture quickly becomes insular and product lines divergences can not be reconciled:

“A big lesson is that it may be easier to go into your quiet space and incubate. But when you want to get bigger and get more resources, you want to make sure you’re aligned,” a Courier team member said. “If you get Sinofsky on board from the start, you’re probably going to market.”

So the challenge again appears to be with Microsoft’s R&D planning and portfolio management process. It is relatively easy to become innovative (may be not $25M, but at least to some level), however, it is not easy to align product portfolios to bring innovation to market:

For Courier to come to life, the team creating it would have to convince the Microsoft brass that the device would offer the company substantial opportunities that Windows 8 could not. In the end, that proved to be too large a hurdle for J Allard, Courier’s leader and Microsoft’s chief consumer technology visionary.

One way to address this challenge is to have more detailed R&D plans that can be shared and linked across different product lines. These plans could have allowed teams to decide how they can bring different development paths together over time without an outright cancellation of Courier. Well communicated plans and roadmaps could have facilitated collaboration between Courier and Windows 8 teams. This collaboration could have ensured that more of the technologies developed under courier could have been integrated into Windows 8. This unfortunately did not happen.

It’s unclear what, if any, pieces of the Courier technology are finding their way into other Microsoft products.

The only way any new innovation got introduced to Microsoft was through unmanaged diffusion:

Courier team members scattered. Many moved on to other products at Microsoft, such as Xbox, Windows Phone, and Bing.Others are involved with different incubation efforts at the company.

A final lesson could be better portfolio management processes such as more frequent portfolio reviews where executives could have either reconciled development plans or eliminated the project before significant resources and emotions were invested:

And a few employees who contributed to the product’s development have left the company altogether, joining other tech firms such as Amazon, Zynga, and Facebook.

How can R&D Management help exploit Thematic Similarity?

The article In Praise of Dissimilarity from MIT Sloan Management Review has very important implications for R&D management. The article describes how most managers view similarity based on functionality or product taxonomy (e.g solid state drives and hard drives are similar). However, another way to look for similarity is based on how different products interact in a scenario or event (e.g. shoes and mp3 players are related through exercise). This is called thematic similarity. The article points out that thematic similarity can help focus innovation and provide a competitive advantage. However, it also raises some important challenges for R&D management. Lets dig in.
Traditionally similarity (taxonomic similarity) has been seen as a that based on overlap of functions and features:

Whether explicitly or implicitly, the traditional understanding of “similarity” by managers has been a taxonomic one. Simply put, the degree of similarity as traditionally measured depends on the extent to which two objects possess the same features. Personal computers, for instance, all have hard drives, processors and a video monitor.
…
Thus, taxonomic similarity is based on the properties of the objects themselves, and taxonomic categories cohere around shared internal properties. As a consequence, taxonomically related concepts tend to resemble one another.

Thematic similarity is probably as important but often overlooked:

…similarity is not just a matter of degree (how similar are two things), but also of kind (how are two things similar). Two things are thematically similar if they functionally interact in the same scenario or event. For example, an athletic shoe and an MP3 player are related through interacting in a workout theme, coffee and a computer interact in an office theme and a navigation system and a motor via an automobile theme. In each of these cases, the two things perform different roles.

However, managers are trained to focus on taxonomic similarity and hence prone to ignore thematic uncertainty:

When managers ignore the thematic similarity hidden behind taxonomic dissimilarity, they risk overlooking opportunity (as well as misdiagnosing threat).
…
The behavioral theory of the business enterprise has long acknowledged managers’ dangerous tendency to search for opportunity in familiar taxonomic domains.

The benefits of thinking thematically are pretty significant:

Thematic similarity opens up a new area of the dissimilarity space. While Google Maps and Yellow Pages are taxonomically similar services, another Google service, Google Voice Search, and GPS are clearly in taxonomically dissimilar categories. And yet there is a thematic similarity between the two in the context of using cell phones.

Hence themes can actually help focus and direct long-term R&D and innovation:

The new area of thematic similarity holds particular promise for innovation and opportunity search. Focusing on areas of taxonomic dissimilarity can help managers identify novel products or services that result from the combination of strategic assets that are taxonomically dissimilar but thematically related.

As we have discussed many times, innovation occurs at the intersection of technologies. The more dissimilar the underlying technologies, more disruptive the innovation is likely to be. Thematic similarity provides a framework to bring normally dissimilar technologies together – and hence drive innovation:

This distant (in taxonomic terms) yet close search for opportunities created by thematic similarity provides a pragmatic guide to how (in which domains) strategists can find new potential for competitive advantage.

The underlying problem is that R&D management processes and cultures are developed around taxonomic similarity:

Taxonomic similarity underlies key frameworks of management such as strategic relatedness, the Standard Industry Classification (SIC) system, the definition of industry boundaries, including the forces within that industry, and the International Patent Classification (IPC). For example, the IPC category F02 (combustion engines) contains internal-combustion piston engines, gas-turbine plants, jet-propulsion plants and so on.

May be we can extend some of the traditional tools such as brainstorming and focus them around themes:

Methods such as brainstorming, which aim at identifying such distant domains, are often referred to in the general management literature. For example, in an attempt to move beyond mere product extension, companies often encourage their developers to think “outside the box”

But true exploitation of thematic similarity will require management innovation. We will need to develop new tools and processes to decide which thematic similarity to explore and how much to invest in it. One example provided by the article focuses on the integration of GPS technology with cameras. Thinking thematically, this would be pretty straight forward marriage. However, in reality, this very hard to do. The skills necessary to design cameras are very different form those required to design GPS receivers. Even if we can get the two technologists to brainstorm together, actual collaboration though workshops would be rather difficult. For managers, resource allocation for such development would be even more difficult. One approach would be to have detailed roadmaps that can be used to engender purpose driven communication between the two groups and portfolio balancing processes that effectively allocate resources for such activity.

…consider an extreme case in which two products are so strongly associated that they are combined in one product but not thematically integrated. Many cell phones sport a camera function and a GPS function. However, the GPS and camera functions have not been integrated in most phones, despite sharing a thematic similarity: Many photos are about places, just as GPS is about places. Thematic integration links these two functions, allowing users to “geotag” the location at which a photo is taken.

Another advantage of exploring thematic uncertainty is the ability to explore all potential competitors. For example, as the article points out Google did not see their business model as amenable to or at risk from social networking:

Google only openly acknowledged the threat posed by Facebook on November 1, 2007, when it launched Open Social, Google’s own social networking platform. In other words, Facebook remained a noncompetitor for Google for more than three years and six months after Facebook’s launch. In fact, Google managers actively dismissed Facebook precisely because it did not fit Google’s taxonomy of activities. Google CEO Eric Schmidt said, “We have address books, and the sum of our address books is the social graph.” And it was not until February 9, 2010, that Google acknowledged the thematic similarity between social networks and e-mail by making a determined foray into exploiting the integration of social networking and e-mail by launching Buzz, a networking service that was closely integrated with its e-mail offering, Gmail.

We will also need new strategic planning processes that can identify competitive threats from thematically similar firms. More importantly, we will need a better approach to evaluate those threats and find effective ways to respond to those threats. Finally, thematic similarity can be used to find acquisition targets. The article points out that Intel believes it acquired McAfee based on thematic similarities. The problem is that McAfee’sbusiness model is so different from Intel’s that integration of the two will take a very long time.

Actually, Intel and McAfee are remarkably similar thematically. According to Intel, the acquisition of McAfee would boost its strategy in mobile wireless, where it is beginning to produce chips for smart phones. Beyond smart phones, security is becoming a key requirement as new devices, from tablet computers and handsets to televisions and refrigerators, connect to the Internet. The purchase is therefore set to turn Intel, the world’s largest chip-maker, into a leader in security, extending its reach into Internet-connected devices.
…
While experts hope that chips can be improved to make them able to withstand malicious attacks, that prospect is seen as being years away.

Even with time, I am not sure how easy or valuable this integration will be. May be there is a limit to how much taxonomically dissimilar firms can be before they can no longer be merged effectively. Furthermore, if integration is going to take many years, can we actually forecast how the market place will function at that time?
A few more questions than answers, but still a very useful concept.

Necessity is the mother of Innovation (Continued)

A quick post about the article Can Medical Innovation in Developing Countries Disrupt the U.S. Healthcare System?:

While American and European healthcare are characterized by high costs and government regulations, the industry in Asia is booming and producing cost-effective equipment to serve millions.

Western firms have become somewhat complacent in their operating models:

Many U.S. companies have become comfortable operating in a system in which top-of-the-line technologies are reimbursed at premium prices and patients are accustomed to [receiving] “the best,” regardless of price,” the firm notes in its report, ‘Smaller, Faster, Cheaper: The Future of Medical Technology.’

The markets in developing countries are becoming large enough to support innovation:

According to The Economist, medical technology sales in China should reach US$43 billion by 2019, and over US$10 billion in India. And according to a report on global healthcare innovation by PricewaterhouseCoopers (PwC), China has shown the strongest improvement in innovative capacity in the last five years, and its healthcare industry will nearly reach parity with Europe by the end of the decade.

Once they develop low cost innovative products, new players are likely to target western markets and compete for the business.

There is actually enormous amount of innovation at the bottom of the market,” Christensen says. The challenge that lies ahead is whether companies in developing countries can scale up their products to meet global demands.

Firms in developing nations have to be innovative out of necessity. As we have discussed in the past (here and here), necessity is the mother of innovation. Western R&D managers should be thinking about new challenges they can pose for their R&D teams so that they can also become innovative.

Some interesting examples of innovation in the paper…

Impact of Open Source on Open Innovation

McKinsey Quarterly talks about the impact of IP (particularly Open Source development) in a somewhat confusingly titled article (Managing the business risks of open innovation):

“… after all, who would give away patents to make more money from innovation? But as open-source innovation, “crowd sourcing,” and engaging with open communities become increasingly prevalent, could IP-free zones appear in the competitive landscape of other industries? “

Open Innovation is not the same thing as Open Source. As we have discussed in the past, Open Innovation implementation is quite challenging. A key risk involves sharing product development plans in details to identify and incorporate innovation into a delivered product. This is hard to do while maintaining IP ownership rights. One approach to overcome these constraints is to work in Open Source or Shared IP environment. The McKinsey article calls this Open Competition (do we really need another buzzword?). They have evaluated various industries for the potential of Open Source development by asking three questions:

1.Do specialized firms offer proprietary solutions within certain layers of my industry’s value chain?
2.Do integrated firms seek to cut development costs in my industry by drawing on open technologies to substitute for these proprietary solutions?
3.Are the underlying technologies complex—consisting of so many bits and pieces that a significant number could inadvertently infringe on proprietary IP held by specialized firms?

Their results are summarized in the following graphic:

The overall message is pretty intuitive. However, my key message for R&D managers remains that open innovation is hard to implement. In a few industries (such as software), it may be possible to ease implementation by using open source.

How leaders kill meaning at work

I have been meaning to summarize the article How leaders kill meaning at work from McKinsey Quarterly:

“In our book and a recent Harvard Business Review article,3 we argue that managers at all levels routinely—and unwittingly—undermine the meaningfulness of work for their direct subordinates through everyday words and actions. These include dismissing the importance of subordinates’ work or ideas, destroying a sense of ownership by switching people off project teams before work is finalized, shifting goals so frequently that people despair that their work will ever see the light of day, and neglecting to keep subordinates up to date on changing priorities for customers.”

But specifically, the article points out the following traps:

1. Mediocrity Signals: Executives encourage mediocre behavior through their actions, while describing greatness in missions statements. For example, some executives talk at length about innovation, but innovation projects never receive investments. In one company the top executive asked to eliminate non-strategic R&D investments. The portfolio manager ranked all the projects and developed a list lowest ranked projects. The executive overruled the entire list without any justification (they were his pet projects).

2. Strategic “Attention Deficit Disorder”: Executives do not allow adequate time to mature strategic initiatives and see their results. I have seen this many times. Most new technology or product development takes time. Executives loose interest and change priorities. This is very demoralizing for R&D teams.

3. Complex bureaucracies lacking accountability: Many times executives set up complex organization structures to satisfy (mainly) executive politics. Other times, there are overlapping roles and responsibilities. In either case, there is lack of accountability for different functions. One part of the organization not working hard impacts morale everywhere.

4. Unactionable strategies and goals: Many times executives set up big goals but most teams do not know what to do to achieve those goals. In one company the executives wrote a strategic plan which said cut costs and improve innovation (literally). They then proceeded to tell everyone to achieve those goals. No one knew what to do!

It is essential for managers to avoid these traps. One key would be to keep employee perspective in mind and provide clarity on how everyone can contribute. Other is to assess if there is a disconnect between the executive team perspective and that of employees at large.