Archive for May, 2012|Monthly archive page
Most consumer and industrial goods companies rely heavily on product development to remain competitive. However, the traditional approach to developing products and performing R&D may not be optimal due to economic and organizational realities. To continue growing, managers should rethink how they develop and commercialize innovative products and services.
Profitably growing market share has gotten a lot tougher since the 2008 financial meltdown – a situation unlikely to change in the medium term. Stagnant market growth and evolving consumer behavior is negatively impacting the demand side of the equation. At the same time, product development – the end-to-end process of bringing a new product to market – has grown more expensive and risky due to the high cost of R&D and the difficulty of generating truly differentiated innovation. The hash reality is that up to 90% of all new products fail to achieve market objectives. Equally concerning, conventional product development practices are challenged to deliver category-expanding ‘blue ocean’ strategies or to target the unique needs of emerging market – so called ‘bottom of the pyramid’ – consumers.
The traditional product development model has 3 major drawbacks: i) it is challenged to generate breakthrough thinking and execution beyond incremental improvements; ii) it is unable to deliver new products at a significantly lower cost and; iii) it typically does not produce a true and holistic picture of consumer needs.
In many cases, the only way to overcome these business challenges is to fundamentally retool how companies develop products. To make this happen, organizations should address the 3 Rs of process innovation: 1) revamp how they approach product development; 2) refocus around fundamental consumer needs and; 3) remove organizational barriers within the structure, process, and culture.
Revamp the approach
In many enterprises, siloed product developers are hostage to preconceived notions and assumptions about what a product should be and how it should be developed. This mindset is also reinforced by the firm’s dependence on the existing supply chain as a source of new ideas and technology. In a revamped development process, open-minded managers approach product innovation with a clean sheet of paper, focusing on delivering only the most essential features and functionality with superior value. Managers will adopt a wider product lens, looking outside the firm and industry to academia, other suppliers and geographies for inspiration and new technologies.
Rethink consumer needs
In these difficult times, gaining superior utility and value (including but not limited to low cost) is top mind of most consumers, even in premium categories. Yet, many companies have a poor understanding of their consumer’s core functional and emotional needs (i.e. the job to be done) and are unable to prioritize these needs against their product roadmaps and capital spend. Gaining a deeper, more holistic understanding of consumers and the trade-offs they make oblige managers to go beyond basic research techniques to include analytical tools such as ethnography and choice modeling.
As with most change initiatives, any effort to improve the product development process will fail unless managers can overcome organizational barriers and inertia. To do this, leaders should stress:
- Top-down support – Traditional enterprises, particularly successful ones, will exhibit inertia in the face of major change. Senior, cross-functional leaders will have to commit to and maintain ongoing support for the change initiative. This attention should include bold (yet realistic) goal-setting, ongoing performance tracking and regular engagement with external stakeholders and key customers.
- Cross-functional mobilization – Radical product or service innovation is about speed and creative problem solving. One of the best ways to achieve this is by forming high-performance, cross functional teams that will secure input and support throughout the organization. In many cases, these teams will need to function as unique structures with their own streamlined processes, frank communications and pragmatic management styles.
- Open up R&D – Few companies have the resources, inspiration and time to support all of their R&D requirements. A proven way to catalyze new thinking and execution speed is by opening up product development to external stakeholders including supply chain partners, academia and innovative start-ups. A variety of firms such as 3M, Siemens, P&G and GE have used Open Innovation strategies to improve R&D productivity and partner collaboration.
Many companies have successfully retooled their product development functions to dramatically improve how they develop and launch new, cutting-edge products. Some examples include Nokia (the 1100 model is the best selling, low cost cell phone), Tata (with their $2000 Nano car) and GE (with their low-cost, portable Mac 1 ECG machine). If firms want to develop more compelling and innovative products, their leadership should look to process innovation as a catalyst to enhance results.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.
Over the past 18 months, I have spent a great deal of time talking with CIOs about their Cloud Computing plans. Despite the potential value, many firms have taken a cautious approach to deploying applications in the cloud. And, it’s not for lack of interest or intent. The current economic and regulatory climate has squeezed IT budgets and heightened sensitivity around business and brand risks. Furthermore, CC continues to evolve, driven as much by hype and technology as it is by user needs and perceptions. Companies will successfully leverage CC if they can align their IT strategies to their corporate priorities, understand and adopt relevant CC best practices and overcome organizational barriers.
CC is a relatively new computing model whereby application software and its business data resides in remote data centers that organizations access via the Web. There are 3 different types of Clouds: 1) Public clouds – the data centers are run by third parties who co-locate applications of multiple companies; 2) Private clouds – the data centers are run and operated for the sole use of an enterprise and; 3) Hybrid cloud – firms utilize the combination of public and private clouds that best satisfies their computing, user and spending requirements.
To fully leverage CC’s potential, IT managers will benefit from a better understanding of how companies are leveraging the cloud, what kind of financial returns are they seeing and what the organizational implications of these changes would be.
The following insights were gleaned from my consulting work around developing CC strategy and business cases. Where applicable, I will reference a recent global study published by Tata Consulting Services, a major IT services firm.
1. CC penetration has been modest.
According to Tata, cloud applications make up only 19% of all applications of the average $1B U.S.enterprise. Financial services, IT and manufacturing firms are leading the adoption curve while health care, chemical and metals & mining companies are the bottom 3 sectors. A typical CC project begins as a line of business pilot, often implemented through a specialized CC vendor – as opposed to their strategic IT partner. This approach can be implemented relatively quick, helps demonstrate technical performance, determines ROI and garners learnings for larger enterprise-wide roll outs.
2. Adoption rates are being driven by customer-focused applications.
Based on our research, marketing, sales and service applications are capturing at least 50% of CC investments. This partially reflects the corporate importance recently placed on revenue-focused strategies as well as the availability of customer-centered and proven cloud offerings such as salesforce.com and Amazon.
Many firms continue to have security and privacy concerns about moving applications that handle sensitive data to the cloud. According to Tata, the applications least frequently shifted from on-premises computers to the cloud were those that maintained employee data (e.g., payroll), handled legal issues (e.g., legal management systems), focused on product performance (e.g., pricing and testing), and processed key customer information (e.g., customer loyalty and e-commerce transactions).
3. Leveraging the cloud can deliver measurable and real value.
In our client work, we have seen modest cloud deployments – properly designed, planned and funded – deliver significant short term business results. For example, new product and services time to market has been accelerated an average of 4.5 months versus the baseline, leading to quicker investment payouts. From a cost savings perspective, some firms have seen IT utilization rates soar over 500% when they moved some applications to the cloud. In other cases, 2 companies saved a total of $2.8M over 12 months by deferring or avoiding expensive software licenses and hardware purchases.
Many CIOs remain skeptical around attainable ROI, tracing to a number of factors. For example, it is difficult to accurately forecast savings and revenue gains without other CC comparables. In addition, some CIOs still recall the longer than expected payouts from earlier major CRM and ERP investments.
4. Other factors, in addition to cost reduction, are driving early adoption.
Although most cloud vendors emphasize cost savings as the primary benefit, other aspects of the value proposition are attracting early adopters. These include: more closely tying standardized IT resources and applications to business needs; enabling quicker IT scalability; accelerating the launch of IT-dependent products and services and; enhancing business continuity.
5. Many companies are cautious about deploying many applications to a public cloud. On the other hand, private clouds still have much appeal.
Lingering concerns remain about a public cloud’s security, privacy and total long term cost. The Tata survey found that less than 20% of U.S.firms would consider putting their most critical applications in public clouds. However, 66% of U.S.companies would consider putting core applications into more secure (and possibly more expensive) private clouds. In both scenarios, we have found that many IT managers are challenged to separate the reality (e.g., strengths, gaps) of CC from industry hype. Until the industry matures, this disconnect will continue to hinder adoption rates.
6. Organizational dynamics are a major barrier to higher cloud penetration.
A transformational IT paradigm such as CC is bound to trigger internal debates around governance (e.g., what are the new rules, policies?), control (e.g., who internally is in charge?) and IT resourcing (e.g., which functions or business units get priority?) These challenges – and not technical requirements – pose the greatest barrier to higher CC adoption in the short term.
For more information on our services and work, please visit the Quanta Consulting web site.
Companies looking to ignite their innovation engines have two admirable models to emulate: Google and Apple. Both firms have used innovation to become wildly successful market leaders. Their cutting-edge innovation strategies infuse all facets of their business, from product functionality and operational practices to business model design. At the same time, Google and Apple epitomize two different approaches of fostering and implementing innovation.
Google’s vision is about using the power of internet technology to enable business, operational and product innovation. Inspired by its own experience as a lean Silicon Valley start-up, Google’s model relies on bright and passionate minds, rapid experimentation and immediate market feedback to develop innovations. New products and features are quickly introduced online, refined and then re-launched. At any one time, there could be dozens of innovation projects under way, many of which could be disruptive in nature such as its self-driving car.
Unwilling to rest on its laurels, the company’s mandate is to continuously improve its search, advertising marketplace, e-mail and other services, based on how people use its offerings. Google’s approach could best be described as bottom-up: customers become partners in product design and operational enhancements through their immediate testing and feedback of new innovations.
The key components of this strategy are employee experimentation, data-driven decision-making, online testing and networked communications. Powerful web tools bring the market inside the firm, enabling crowd-sourced collaboration as well as the rapid prototyping of product ideas. Furthermore, many employees must commit a certain amount of time to germinating new ideas and creative problem-solving.
Google truly understand Internet economics – rapid software testing, powerful network effects and low cost product distribution – so it can expend relatively modest amounts of time, money and risk to launch new projects. This innovation model is ideal for the development of Web-based products as well as the creation of blue ocean markets like Internet software, online commerce and mobile applications.
Apple pursues a very different innovation strategy. Though networked communications and marketplace experiments add useful information, breakthrough ideas and the fortitude to sustain them come from passionate individuals, not committees or thousands of beta testers. As compared to Google, Apple’s innovation model is more edited, intuitive and top-down. “There is nothing democratic about innovation,” says Paul Saffo, a veteran technology forecaster in Silicon Valley. “It is always an elite activity, whether by a recognized or unrecognized elite.” The customer plays a minor role in the early stages of innovation. When asked what market research went into the company’s elegant product designs, Steve Jobs had a standard answer: none. “It’s not the consumers’ job to know what they want.”
Apple’s more directed approach is also a function of the business that it’s in. Apple’s physical world is far different from Google’s realm of Internet software, where writing a few lines of new code can change a product instantly. Apple must consider a multi-year technology and supply chain roadmap for its products, with new models expected regularly from its zealous users. Furthermore, the careful melding of hardware with software – a vital differentiator for Apple’s products – is a challenge with multidisciplinary systems design that must be orchestrated by a firm, guiding hand.
Much of Apple’s impetus for innovation comes from the legacy of Steve Jobs as well as the senior leadership he recruited. Their job is to harvest a variety of Apple’s information-gathering networks for ideas and inspiration. As such, top managers need be excellent synthesizers of information ranging from popular culture to semiconductor design.
On average, Apple looks to innovation to deliver product and operational home runs. The Company tends to put considerable resources and thinking behind a few big ideas and then implement them with excellence and fanfare. Other vital functions such as product supply, marketing and customer service play a critical role in ensuring new innovations are fully exploited.
Which approach works best?
It depends on how you measure success and shareholder value. The better question may be: is there one best approach to innovation? My experience advising firms with their innovation strategy suggests that combining the best and most practical aspects of each approach will yield the best results. According to Saffo, fostering innovation requires “an odd blend of certainty and intellectual rigour and openness to new information and new ways of thinking” In other words, it should be a blend of top-down guidance and bottom-up discovery mixed with a dash of open innovation tactics.
Open innovation sesame
Both organizations have not been shy leveraging external sources of innovation. Apple discovered its point-and-click mouse and graphical on-screen icons (which later became the standard for the personal computer industry) in 1979 at Xerox. In 2010, Apple purchased Siri, a small Silicon Valley start-up, for its talking iPhone question-answering application. Siri was originally a program funded by the Pentagon. In 2009, Google launched its Google Ventures program, a comprehensive open innovation platform. Google Ventures includes a start-up university and innovation lab – places where entrepreneurs can develop their products, collaborate and tap into Google employees.
Though Apple and Google may pursue very different paths to innovation, they do share many innovation-enabling attributes such as a nurturing culture and management system. Moreover, the gap between their two models may be shrinking somewhat. Recently, Google moved toward a top-down approach by culling a diverse collection of more than two dozen projects. Steve Jobs’ replacement, operational expert Tim Cook, will almost by default be more of a bottom-up leader than his predecessor. Ultimately, both models may end up converging.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.