Sagantia Innovation Boot Camp - Kick Starting Innovation

Sagantia is a UK based technology and product development company that I've been studying as part of the research for a new project.  Among the many interesting things they do is run an innovation boot camp (click on the link to download a case description), which has many characteristics in common with other innovation sessions that I have organized myself.  It's got a lot of similarities to the driving organic growth and innovation program that Bob Cooper led for some time at DuPont and for other companies.  Among the salient features:

• Rock-ribbed senior level commitment from the top to provide resources once an idea is endorsed
• Time to focus on ideas that could lead to possible business, rather than shoring up existing businesses
• Facilitation by experts with a process architecture (in the Sagantia case, it's a three week intensive process; in the Market Driven Growth case it involves several iterations over a few months)
• Input from external experts and customers as well as insiders
• Clear decision points and clear decision criteria
• Generation of lots of ideas to get to a few that might be worthwhile
• A process of true engagement, not just an 'event' or lip service

We've all been part of those horrible 'no idea is a bad idea' brainstorming sessions where everyone has a good time and nothing ever happens.  Case studies such as the Sagantia example can help us from getting off on the wrong track.

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• Posted Rita McGrath on August 13, 2010
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Idea generation is seldom the problem

So, you've decided that its time to get out from under that black cloud your business has been in for the last  two years and start thinking about growth again.  If you're a senior leader or CEO, what do you do next?  If you're like many, you'll gather together a group of important people in your organization and start brainstorming about new growth opportunities for your company, hoping that the great ideas coming out of the session will catapult your organization to a new growth trajectory. 

Hmmm.  Not so fast.  For starters, most companies don't lack for good ideas - just ask a randomly selected group of employees and you'll be flooded with suggestions for how the business could be improved.  The dilemma is that many of these are not going to be breakthrough concepts.  To get those, you really need some kind of framework, like the lenses approach we take in MarketBusters or some other structured way to stimulate your thinking.  Blank sheets of paper are terrifying!  Secondly, most senior leaders (with all due apologies) are quite removed from the customer experiences and therefore can come up with stuff that looks good on paper but may not work at all in real life.  Have a look at any series of senior-level decisions to do new things (often with acquisitions) and you'll see what I mean (Bebo, anyone?). 

What senior leaders can do instead is to foster the development of an innovation and growth system in the organization that can take the ideas that are floating around, scale the best of them and commit a convincing set of resources to them so that they actually have a chance to succeed in the marketplace.  The problems senior folks need to address are often legion:  silos, poor resource allocation processes, risk-aversion, negative handling of failures and disappointments, sclerotic budgeting systems, slow decision-making...if you're going to get them focused on growth, those are the things that need to be addressed. 

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• Posted Rita McGrath on July 24, 2010
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Why a walled garden can out perform a free-for-all

I ran across this interesting post from Bob Cooper's blog over at the Kellogg site.  In it, he reprints some observations from pundits that calls into question the conventional wisdom that an open platform such as the original World Wide Web encourages more innovation.  I've actually never really bought that argument.  Instead, I believe that a 'walled garden' will always triumph over situations in which individual players try to put their own individual best feet forward, but the user has to create a complete experience themselves.  You can think about it this way:

In the beginning, stage one, companies thrive on product advantages or individual components, but users have to do their own integration of these into complete experiences.  Think of pharmaceuticals today - you win on the molecule, but the whole experience of having your illness treated is a fragmented mess.  Everything from the search for solution to the payment streams are not integrated and often quite dissatisfying.  You can think of open platforms on the Web in the same way - I might buy a piece of software, but the expeirence is not necessarily rich or useful to me.

In stage two, which is where Apple is being really clever, some player comes along who can address the gaps and deficiencies of the user experience by controlling and integrating it.  Vertically integrated players, who control all the user interfaces, can do much more for us than the scattershot approach of Phase I.  IBM in Mainframes, Nokia in many types of mobile phones, and the move by firms such as Oracle and HP to offer complete solutions reflect this sensibility.  We'll pay a LOT of money for a satisfying, bug and hassle free user experience.

Things don't stay the same, of course - in stage three, the interfaces get standardized and advantage goes to players who can dominate a horizontal layer - like Microsoft in operating systems or Intel in microprocessors. 

So we shouldn't be surprised that people are happy to innovate around a secure, well designed platform where a responsible adult is making sure we have a great experience.  This also explains why Apple and Adobe are at each others' throats - Apple doesn't want Adobe horizontalizing its platform space.  Smart strategy. 

"For about a decade now, ever since it became clear that the jungle of the World Wide Web would triumph over the walled gardens of CompuServe, AOL and MSN, a general consensus has solidified......
....That unifying creed is this: Open platforms promote innovation and diversity more effectively than proprietary ones.

In the words of one of the Web’s brightest theorists, Jonathan Zittrain of Harvard, the Web displays the “generative” power of a platform where you don’t have to ask permission to create and share new ideas. If you want democratic media, where small, innovative start-ups can compete with giant multinationals, open platforms are the way to go.....

....Over the last two years, however, that story has grown far more complicated, thanks to the runaway success of the iPhone (and now iPad ) developers platform — known as the App Store to consumers.

The App Store must rank among the most carefully policed software platforms in history. Every single application has to be approved by Apple before it can be offered to consumers, and all software purchases are routed through Apple’s cash register. Most of the development tools are created inside Apple, in conditions of C.I.A. -level secrecy. Next to the iPhone platform, Microsoft’s Windows platform looks like a Berkeley commune from the late 60s.

And yet, by just about any measure, the iPhone software platform has been, out of the gate, the most innovative in the history of computing.....
.....Perhaps more impressively, the iPhone has been a boon for small developers. As of now, more than half the top-grossing iPad apps were created by small shops.
Those of us who have championed open platforms cannot ignore these facts. It’s conceivable that, had Apple loosened the restrictions surrounding the App Store, the iPhone ecosystem would have been even more innovative, even more democratic. But I suspect that this view is too simplistic. The more complicated reality is that the closed architecture of the iPhone platform has contributed to its generativity in important ways.

The decision to route all purchases through a single payment mechanism makes great sense for Apple, which takes 30 percent of all sales, but it has also helped nurture the ecosystem by making it easier for consumers to buy small apps impulsively with one-click ordering. People don’t want to thumb-type credit card information into their phones each time they download a game to distract the kids during a long drive in the car. One-click purchase also supports lightweight, inexpensive apps, the revenue from which can support small software teams.
Consumers are also willing to experiment with new apps because they know that they have been screened for viruses, malware and other stability problems as part of the App Store’s approval process.

The fact that the iPhone platform runs exclusively on Apple hardware helps developers innovate, because it means they have a finite number of hardware configurations to surmount.....
.....But whatever Apple chooses to do with its platform in the coming years, it has made one thing clear: sometimes, if you get the conditions right, a walled garden can turn into a rain forest."

--
Posted By Bob Cooper to Driving Organic Growth and Innovation at 6/14/2010 08:00:00 AM

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• Posted Rita McGrath on June 14, 2010
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Top 30 Innovations of the last 30 years

In this fascinating article, a roundup of the most important innovations of the last 30 years is presented.  I was struck by the article’s opening premise - that if one were sitting around in 1979 and thinking about what innovations would change our lives, we would not have been able to anticipate many that were on the list (compiled by the Wharton School in conjunction with National Public Radio).  It is truly remarkable how many of the innovations that we take completely for granted today simply didn’t exist - and it’s hard to imagine a world without them.  Here’s their list:

1.Internet, broadband, WWW (browser and html)
2.PC/laptop computers
3.Mobile phones
4.E-mail
5.DNA testing and sequencing/Human genome mapping
6.Magnetic Resonance Imaging (MRI)
7.Microprocessors
8.Fiber optics
9.Office software (spreadsheets, word processors)
10.Non-invasive laser/robotic surgery (laparoscopy)
11.Open source software and services (e.g., Linux, Wikipedia)
12.Light emitting diodes
13.Liquid crystal display (LCD)
14.GPS systems
15.Online shopping/ecommerce/auctions (e.g., eBay)
16.Media file compression (jpeg, mpeg, mp3)
17.Microfinance
18.Photovoltaic Solar Energy
19.Large scale wind turbines
20.Social networking via the Internet
21.Graphic user interface (GUI)
22.Digital photography/videography
23.RFID and applications (e.g., EZ Pass)
24.Genetically modified plants
25.Bio fuels
26.Bar codes and scanners
27.ATMs
28.Stents
29.SRAM flash memory
30.Anti retroviral treatment for AIDS

A few things strike me about the list.  Firstly, that companies at the leading edge of some of these innovations became huge drivers of growth and economic development (think Intel or Microsoft or Google), while companies that are displaced in value by these innovations disappeared (think IBM Selectric Typewriters or Polaroid).  Not that that is such an unusual observation - what is harder to grasp is just how unpredictable these innovations are.  Even Intel didn’t grasp the significance of its microprocessor innovation and had to repurchase the license for it from the company it invented it for.

A second and perhaps more interesting observation is that huge swaths of people do not live in the same technological world that those benefitting from these innovations do.  Take the many elderly people who can’t relate to a mobile phone, let alone a personal computer.  It’s as if they have been cut off from the evolutionary flow of things.  Or consider people without a lot of resources—when you are worrying about getting food on the table, messing about with Twitter is probably not a priority.  Should this concern us? 

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• Posted Rita McGrath on January 03, 2010
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Taxes, the structure of incentives, and why I’m worried about the plan for health reform funding

When I was a Ph.D. student studying entrepreneurship, one of the most influential articles I read was by economist William J. Baumol.  Entitled “Entrepreneurship: Productive, Unproductive and Destructive”, it basically suggested that a nation gets the type of entrepreneurship it rewards.  Countries that reward productivity-enhancing risk-taking richly encourage those with entrepreneurial inclinations to pursue those activities.  Countries, in contrast, that reward other kinds of activities, such as politicking, status-seeking through religion or study, or worst of all, counterproductive activities like drug dealing and other forms of corruption—tend to encourage those with entrepreneurial talents to pursue those sorts of activities, to the detriment of more productive entrepreneurship. 

Baumol’s observation haunts me as I peruse the extensive coverage of the frantically rushed efforts to overhaul 17% of the nation’s economy in one fell swoop in the form of a major change in how medical care is allocated and paid for.  Without examining the merits of the health aspects of the plan, I wish to express grave concern with this wholesale and ill-considered redistributive move.  Perhaps without intending to (or more likely, without having ever given it a thought), the plan currently being sped along by the House Democrats is going to fundamentally alter what Baumol called the ‘structure of incentives’ that shape how entrepreneurs allocate their energies. 
Let’s start with the basics:  Under the House plan, medical care would be paid for by a surtax on those families with household income above $350,000 in 2011, a surtax which can go to as high as 5.4%, in addition to the tax increases already scheduled to kick in in 2011.  Further, the plan would impose mandatory health insurance coverage for employees on all businesses with more than 25 of them, or a fine of 8% of payroll.  Employers with more than $400,000 in payroll would basically have to pay at least 25% above salary to hire an additional person.  Research suggests that a great many Americans with incomes above $350,000 are entrepreneurs and small business owners - in many cases, they operate sub-chapter S corporations in which profits are cashed out at the end of each year and taxed at the individual rate.  That money, which looks like discretionary income to headline-hungry politicians, is often plowed back into the business.  It’s not going for luxuries - in many cases, it’s going for working capital, inventory, marketing, and other unglamorous business necessities. 
So what does Baumol’s theory tell us is likely to happen?  Well, the first predictable consequence is that an awful lot of entrepreneurial energy is going to be spent, not productively, but unproductively, as small business people and those falling into the higher-tax categories spend their time not producing new innovations but figuring out how not to fall into the maws of increased tax and regulatory burdens.  Following right on that as a predictable consequence is that those who are able to do so will do business in such a way that they don’t fall into the higher-taxed categories.  Rather than pay individual rates, small businesses will incorporate and pay the lower 35% corporate rate.  Further, get ready for the new conglomerates - thousands of businesses employing exactly 24.5 people, all interconnectedly doing business with one another rather than falling foul of the over 25 employee stricture.  And with small business growth having led us out of most recessions in the past, get ready for this sector to add jobs far more slowly and with far greater caution than it had previously -  a big blow to an economy that desperately needs a vibrant and growing small business sector. 
At a more macro level, a huge body of research points to the same conclusion (remarkably, for academic research).  The effects of higher individual taxes on rates of entrepreneurship are without an exception, negative.  It is well accepted, and has been for decades, that the desire to have a vibrant entrepreneurial economy is at odds with the desire to operate a welfare state, due in large part to the way in which welfare states allocate resources – when the upside to undertaking the risks of entrepreneurship decrease, while the downside of not doing much at all are limited, it becomes hard to justify making the effort.  If it is possible to live quite a comfortable life without too much bother, why take on the long hours, the worry and the headaches of small business ownership?  You don’t need to take my word for this – the following excerpt is from an academic study, looking at the structure of incentives for entrepreneurship in Sweden, probably the worlds’ best known welfare state.  Here is what the author concludes:
Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is shown how key welfare state institutions tend to reduce economic incentives both for opportunity-based and necessity entrepreneurship. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are broadly consistent with the identified structure of payoffs. A number of measures can be implemented to strengthen entrepreneurial incentives within extensive welfare states, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions (Magnus, 2005, p. 437).
So here is the really chilling part about the proposed tax hikes.  The Wall Street Journal on July 17 (“A Reckless Congress” page A14), citing research by the OECD and the Heritage Foundation found that the top average US tax rate (combined state federal marginal tax rate) would hit 52% should the Obama budget and House health-care plan become law.  In some states, such as New York and New Jersey, the rate would be 56.92% and 57.07%, respectively.  What’s the marginal tax rate in Sweden? 56.44%. 
All this and the US taxpayer would not enjoy the benefits of a true welfare state - excellent, inexpensive, state-funded universities, ample unemployment benefits, child assistance benefits and, yes, government funded universal health care. 
Those of us, myself included, who believe that it is entrepreneurship that drives economic vibrancy should be doing everything in our power to persuade the stewards of our country’s well-being to stop this train wreck in the making.  Or perhaps the Journal editorial writers said it best:
The world is looking on, agog, and wondering why the United States seems intent on jumping off this cliff.
REFERENCES:
Baumol, W. J. 1990. Entrepreneurship:  Productive, Unproductive, and Destructive. Journal of Political Economy, 98(5): 893-921.
Magnus, H. 2005. Entrepreneurship: a weak link in the welfare state? Industrial and Corporate Change, 14(3): 437.

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• Posted Rita McGrath on July 22, 2009
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