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October 14, 2005

IBM and the future of R&D

According to IBM executives who spoke at a meeting of high-powered technology executives in New York, the traditional ways of approaching R&D are over: "In this 'flat world' age of specialized outsourcing, companies shouldn't do too much by themselves. Even research and development work at the heart of what distinguishes businesses from rivals can be opened up and spread around."

Irving Wladawsky-Berger, IBM's vice president for technical strategy and innovation, was even more direct about what this means for Corporate America: "If you're doing R&D, and if you're not world-class, then you'd better let it go."

And who better to do it than IBM's new custom R&D unit? The unit, known formally as the IBM Engineering and Technical Services (E&TS) unit, comprises more than 1,400 R&D-consulting engineers, and is now viewed internally as a potential way to boost revenues. If nothing else, say experts, the custom R&D unit will spark the sale of IBM hardware.

The IBM E&TS unit is already working on some high-profile projects:

(1) Customizing the chips that will run next-generation video game consoles made by Microsoft, Nintendo and Sony
(2) Developing military technology with Raytheon
(3) Collaborating with Nortel Networks on telecom research
(4) Developing automobile "black boxes" that monitor traffic and automate toll collection
(5) Coordinating with the Pentagon on a supply of chips for sensitive military electronics

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Money can't buy you love... or R&D success

The conventional wisdom says that the more a company spends on R&D, the more likely it is that the company will develop innovative new products and deliver superior financial performance. That's why, for example, companies like IBM have been so succesful when it comes to developing ground-breaking new innovations that boost shareholder value. It's pretty much like saying "studying more for a big semester-end final will result in a higher grade." Yeah, maybe you study the wrong things, but chances are that if you put in the time, you'll do better on the exam.

However, a a recent Booz-Allen Hamilton study shows that more spending on R&D does not automatically correlate with superior performance. The bottom line: "Companies that spent proportionally greater sums than their industry peers did not generate higher revenue gains or better profitability." What's more, the findings stood up across a broad cross-section of industries. As one Booz-Allen director working on the study points out, "The study found no statistically significant difference when comparing the financial results with those in the top 10% of their industry."

Two numbers that jumped out from the report:

Computing & Electronics, Health and Auto account for 63% of total spend on world-wide innovation.

Companies headquartered in North America, Europe and Japan make up 96.8% of total worldwide R&D spending

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What the frozen margarita machine can teach you about innovation

Ever wondered how and why the frozen margarita machine was invented? Virginia Postrel of Dynamist points to a story in the Dallas Morning News that shows how listening to your customers can provide the crucial spark for new product innovation. In this case, it was Dallas restaurateur Mariano Martinez listening to his bar customers, who wanted consistently blended, cold margaritas:

Mr. Martinez had grown up around his father's eatery, El Charo. Tequila was tough to come by then, he said, and the margarita was an exotic drink that most people only consumed on vacations in Mexico.

But the elder Mr. Martinez occasionally would make the frozen drink in a blender for his patrons. When his son opened his own restaurant, he knew that frozen margaritas would help his establishment stand out.

The harried bartenders at Mariano's couldn't squeeze enough limes or blend the drinks fast enough to keep up with demand, though. Customers complained – the signature drink was inconsistent, and it wasn't even cold.

A pit stop at a 7-Eleven proved inspiring. Mr. Martinez spotted a Slurpee machine and knew he'd found the answer. He acquired a soft-serve ice cream machine and started mixing.

"The challenge was to make each drink taste like a blender margarita," he said. "We kept experimenting – and tasting."

Once Mr. Martinez hit upon the right recipe – sugar was the secret ingredient, he said – he moved the machine to the bar.

"It became an instant success," he said. "We didn't have to sell it."

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Top 10 ways to kill innovation

In a six-page PDF, Joyce Wycoff, who writes the Good Morning Thinkers! blog and co-founded the Innovation Network, has provided a list of the Top 10 Innovation Killers:

1 Not creating a culture that supports innovation
2 Not getting buy-in and ownership from business unit managers
3 Not having a widely understood, system-wide process
4 Not allocating resources to the process
5 Not tying projects to company strategy
6 Not spending enough time and energy on the fuzzy front-end
7 Not building sufficient diversity into the process
8 Not developing criteria and metrics in advance
9 Not training and coaching innovation teams
10 Not having an idea management system

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An Indian innovation blog worth checking out

What are India and China doing right that America isn't when it comes to innovation? It's too easy to say that India and China rely on low-cost labor to out-compete rivals in the USA and Europe. Just like Japan's managers developed a whole range of innovative business strategies - like JIT (just-in-time) production - to fend off American car manufacturers in the 1980s, maybe Indian managers have stumbled upon a "secret sauce" for innovation.

Anyway, that's one of my pet theories. So I checked out Technorati, which now has the ability to search blogs by content category. One of the blogs listed in the "innovation" category was Gautam Ghosh on Management, an Indian innovation blog that was named "Indiblog of the Year" in 2004. For anyone who's interested, there are some fascinating insights into the mind of the Indian management class. Apparently, Gautam Ghosh was a hotelier in India who faced a choice: either get an MBA or join the throngs of others "who have gone on to lead BPO and Call Centre organizations in India." He chose the MBA.

(photo credit: Gautam Ghosh on Flickr)

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Big is the New Small

Mena Trott, one of the brilliant minds who developed the Movable Type blogging platform (the same blogging platform that powers this site), weighs in with a defense of big. According to Mena, it's not always true that small, nimble teams are able to out-compete bigger teams. Based on her experience of growing Six Apart from a small, two-person start-up to a rapidly-growing mid-sized organization (what she calls "either a small, big company or a big, small company"), it appears that big is not so bad after all. More people on board, after all, means more different view points, which means more creative ways of tackling new problems. There are also more opportunities to deploy people in new ways - a tactic that could lead to unlocking existing mental bottlenecks:

"If someone doesn't fit the role they are in, there's a very good chance that they can do something else better within the company. A number of people have been able to move into a different position (and even department!) months after their initial hiring. A larger team allows this flexibility."

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Verizon wins kudos for innovative convergence products

Frost & Sullivan named Verizon Communications as the recipient of the 2005 Product Innovation Award for the company's convergence products. Verizon, more than any other company, has been coming up with innovative new solutions to the "wireline substitution challenge."

One of the innovations given special props by Frost & Sullivan was Verizon's iobi (pronounced eye-OH-bee), a "network-based convergent solution" that integrates communications services from landline and mobile phones to PCs, laptops, and PDAs. Angel Dobardziev, an analyst with consulting firm Ovum, has a great explanation of what iobi offers customers:

"Verizon iobi is a network-based convergent solution that not only integrates fixed with mobile telephony, but goes beyond to integrate any communications device, from fixed and mobile phone to PCs, laptops and PDAs. Besides voice, it can integrate on a single device all of users’ communications, voice, email, messages and voicemails. Verizon iobi includes real time call management, leaving the customers to decide where, how and if they receive calls and messages. This includes programmable call forwarding so calls can be directed users’ telephone/ PC or their mobile. It also includes multi modal communications: regardless of how a message comes through, the customer it can decide how to receive it, including by email, voicemail or SMS. If it can deliver all this seamlessly, and at the right price, Verizon iobi has the potential to be an outstanding service."

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In the scramble for market share, Yahoo renews its faith in R&D

Locked in an epic battle with Microsoft and Google for market share in the Internet search industry, Yahoo is devoting more of its resources than ever before to internal R&D efforts, says MIT Technology Review. In many ways, Yahoo is being forced into additional R&D spending by competitors like Google, which has always placed a premium on innovation:

At Google, research is woven into the fabric of the company: software engineers are required to spend 20 percent of their time on far-out ideas, a policy that's given rise to a host of spin-off Google sites.

Microsoft, for its part, has funded extensive research in areas such as data mining and information retrieval, including a system that assembles information from the Web and a user's hard drive before he or she has even realized they need it.

But for Yahoo, having a research operation that helps to invent emerging information tools has never been a major priority... But now that's changing -- and fast.

It's all part of the global war for R&D talent. Over at Tech Central Station, I've written a short op-ed piece about the challenges facing Yahoo, Microsoft and Google in the war for Internet supremacy:

Any U.S. technology company hoping to remain competitive with global rivals and exploit new market opportunities -- whether it is Internet search or China (or both!) -- must make a commitment to hiring, developing and rewarding top-level R&D talent. The lesson is clear: technology companies must first win the battle for R&D talent before they can win the battle for market share. The cliché that "the company's most valuable assets walk out the door each night" has never been truer. Time and time again, companies with the best R&D talent win the battle for market dominance.

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Top lessons from Australian innovators

Australian business magazine BRW has released its list of the Fast 100 - top Australian companies that are innovating their way to success. After pointing out that "problem-solving and constant curiosity are at the heart of innovation for fast-growing companies," BRW goes behind the scenes at 100 up-and-coming Australian companies that have made innovation a key component of their future growth plans. At the end of the article, BRW provides a handy innovation scorecard:

75% Of BRW Fast 100 companies say they have developed a unique product or service

20% Say revenue growth this year will come from new products and services

78% Personally champion innovation

75% Search the world for new ideas

93% Encourage employees to be creative and innovative

72% Are satisfied with the financial return on their investment in innovation

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Seven trends that will transform your business

Ziv Navoth, founder of the innovation consulting firm Verve, has posted a 39-page manifesto (available as an Adobe PDF) on the Change This site. Ziv's manifesto ("Now What?") takes a closer look at the 7 major trends that will transform business in the immediate future. As Ziv points out, companies that fail to recognize how their industries are changing could end up like the ice harvesters of the 1920's, who failed to see the long-term impact of the ammonia compression machine (aka the household refrigerator).

Chapter Five ("The Great Knowledge Migration") of the manifesto looks at why more companies than ever before are tapping into the workforces of developing nations. (hint: it's not just for the cost savings) As Dan Scheinman, the SVP of corporate development at Cisco, points out, "We came to India for the costs, we stayed for the quality, and we're now investing for the innovation."

Chapter Seven ("Peer Production") explains how companies can take advantage of the "wisdom of crowds" and tap into the open networks of knowledge that are now available globally, 24/7.

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October 12, 2005

Welcome to the Business Innovation conference blog

The Business Innovation 2005 weblog is intended as a companion to this year's FORTUNE Innovation Forum being held November 30-December 1 in New York City. For the next six weeks, we'll showcase interesting interviews, articles and commentary centered around the general theme of "business innovation," especially as it pertains to Fortune 500 companies. In the process, we will engage some of the leading thinkers and business practitioners in the world in an ongoing dialogue about the various factors impacting innovation - such as competition, customer experience, intellectual property, and design.

The tagline for this year's Fortune Innovation Forum is "Innovation is Everybody's Business," and we hope this acts as a welcome sign of sorts for anyone who is passionate about innovation - feel free to pass along your ideas about innovation or to alert us to new and interesting stories that we might have missed. We've already lined up a number of highly-recognized bloggers to contribute their thoughts and comments, as well as to engage our speakers in discussions about innovation. It should be an interesting next six weeks -- take time to check out the speaker list for the event and the overall program for the two-day event. It includes some of the most famous names in Corporate America - FedEx CEO Fred Smith and HBO CEO Chris Albrecht - We're also looking forward to hearing from Billy Beane of the Oakland A's and Burt Rutan (Winner of the Ansari XPrize)

The weblog officially launches next Monday, October 17, with new content added daily. We hope that you will join us and look forward to hearing your ideas about innovation.

... Dominic Basulto, Editor

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