CTO Network 2004 Book of the Year - Does IT Matter?

We have selected Does IT Matter? (Nicholas Carr) as the CTOnet Book of the Year for 2004. It describes the declining power of IT to provide competitive advantage to a company that adopts it. One of the greatest values of this book was the controversy and discussion that it triggered. Open discussion on the business power of IT systems was becoming long over due and this book (and the related Harvard Business Review article) broke the dam and got the world talking about it.

Lowest Price: Does IT Matter? at Overstock.com

Innovation with a Bounce - Spalding Infusion

Innovation can come to any product or industry. How much change can go into a basketball? New sticky grips, new patterns, logo licensing ... How about putting the air pump inside the basketball? Now there is a good idea. How many times have you had to hunt up that tiny needle in order to put air into your ball? How many balls are tossed aside simply because they are flat and it is too hard to find the needle.

At my house the pump needle is a well guarded item. I keep it in my car ashtray and do not let anyone else use it or lose it. My daughter and I have been using the Infusion football. We throw a few pumps into the ball every time we use it.

Technology Review Article: Spalding: An Idea with Bounce

Outsourcing Innovation (Business Week, March 21, 2005)

Question: What makes America's Motorola different from India's Wipro?

Answer: (Choose all that apply)

• American vs. Indian-based
  
• High vs. Low-cost of Labor
  
• In-house Innovation
  

The last one will not be a differentiator much longer. Ever since outsourcing began, it has been clear that the complexity of work shipped to India, China, and Eastern Europe would continue to increase. It was clear that one day the most demanding R&D would be done oversees just as manufacturing is now. This week, Business Week magazine profiled this trend in their cover story on Outsourcing Innovation.

• Accenture says, "R&D is the biggest single remaining controllable expense to work on."
  
• Motorola says, when outsourcing "you have to draw a line, core intellectual property is above it, and commodity technology is below."
  
• Flextronics says, "Western tech conglomerates are on the cusp of a sweeping overhaul of R&D that will rival the offshore shift from manufacturing."
  
• Nokia says, "Nobody can master it all. You have to figure out what is core and what is context."
  
• Lucent says, R&D outsourcing "frees up talent to work on new product lines. Outsourcing isn't about moving jobs. It's about the flexibility to put resources in the right places at the right time."
  

Summing all of this up and dividing by the ever advancing trend to outsource, you arrive at a logical conclusion that R&D is a cost to be minimized. Anything labeled R&D is no longer going to be held in-house. Instead, much of this work will be outsourced to foreign companies that are better at it than the US-based conglomerates.

What will remain in-house is anything that creates new intellectual property (IP). This is the cream from the top of the R&D milk bucket. Companies want to retain only the IP and the resources required to create it. Once the IP is created and patented, they are happy to have all of the rest of the work done by anyone anyplace. Companies want to become IP holding companies more than manufacturers or researchers.

Where is this headed? Look at consumer electronics and automobiles. Flextronics, Wipro, and Quanta are the Toyota, Honda, Sony, and Sanyo of tomorrow. American customers will soon be able to choose between two identical phones, one labeled Motorola and the other labeled Compal. Motorola's will cost $199, Compal's will cost $49. Which do you think the customer will choose?

Azim Premji, chairman of Wipro, humbly and slyly states that, "To be a successful product company requires intimacy with the customer", implying that only an American company can achieve that with American customers. So how did Toyota, Honda, Sony, Samsung, and LG build such strong positions in the American product market?

Clayton Christensen described the unstoppable advance of disruptive innovation in his 1997 book, The Innovator's Dilemma. Taking over R&D is the next step along Christensen's famous graph.

Debating whether this is good or bad is largely a political activity. In business, it is part of the economic evolution of the global marketplace. It is going to happen - see "Technology Impacts on Business: Disruption, Globalization, and Innovation Management".

The Business Week article is fantastic, but be sure to read Christensen's book as well.

Industrial Research Institute & Research Technology Management

There are very few good sources for information about the CTO position and responsibilities. The Industrial Research Institute brings together Directors & VP's of R&D. These people often serve as the CTO as well. The associated publication Research Technology Management publishes papers on the practices and responsibilities of CTO's and research directors.

IRI Web Site

Utterback's Innovation Curve

Utterback proposes a three-phase model of product innovation and evolution. The figure illustrates these phases and the activities that occur in each. This is a modified version of the figure given by Utterback (1996).

Innovation in business begins with an explosion of new product ideas. This forms the fluid phase in which there are many alternatives designs for a product and a number of different implementations. Companies compete with each other based on their own unique formulation of the technology and are willing to experiment with new ideas rapidly in order to discover a dominant product.

This is followed by a transitional phase in which one dominant design begins to emerge. Standardization begins to crystallize around that one standard, as when the movie industry began to release more material in VHS format than in Betamax. The preferred design will incorporate the needs of a number of different classes of customers and create a basis from which future incremental changes will be applied. Once this occurs, there is a noted drop in product innovation as firms rush to improve on the accepted or standardized products. At this point, the competition for product designs is over and the competition for the best processes for innovation and production begin. Companies that are able to manufacture or deliver products at low cost, on short schedules, with acceptable quality will win in this phase.

The transitional phase is followed by the specific phase in which many competitors drop out and a few remain. Those that remain share the market and each tries to focus on a unique adaptation of the dominant design.

This model predicts that radical product innovation can only occur at the beginning of the product lifecycle. It is only at that point that there is sufficient latitude in research, market demand, and emerging new features that a number of different designs can exist. Following the transitional phase, a standard emerges and defines the boundaries around the product. Those that do not fit within this boundary are no longer acceptable. Therefore, this becomes a period of incremental product innovation.

Reference:

Utterback, J. (1996). Mastering the Dynamics of Innovation. Harvard Business Press.

Radical vs. Incremental Innovation

“It is not by improving on the candle that the electric light bulb was invented."

That is the real difference between incremental and disruptive innovation. Inventors who searched for new forms of wax, better wicks, scents and colors for the wax, and complementary lantern designs were engaging in incremental innovation. Disruptive innovators worked to turn electrical power into a reliable and ubiquitous source of lighting.

Betz defines Radical Innovation as “a basic technological innovation that establishes a new functionality.” He also defines Incremental Innovation as “a change in an existing technology system that does not alter functionality but improves performance, features, safety, or quality incrementally or lowers cost.” (Betz, 2003)

Moving from candles to kerosene lamps is disruptive to the candle trade and its associated suppliers for wax, wicks, scents, colors, molds, and production equipment. However, these provide very similar capabilities to the customer and it would not be considered radical because the use of the lamps is fundamentally the same as for candles.

Creating electric lighting allows the customer to place lighting in places that a lamp lighter could not reach. It allows the distribution of light on city streets, without the limitations associated with humans to light and clean the lanterns. Benjamin Franklin was a champion of public services like the lighting of the streets. However, he noticed the problems associated with the traditional glass balls that enclosed the lamps. They blackened quickly, requiring frequent cleaning, and when broken were difficult to replace (Franklin, 1778). Electric lights change this entire dynamic.

Additional examples of incremental and radical innovations are provided in the table below. The area of military systems and large government projects is filled with examples of radical innovation.

Domain	Incremental Innovation	Radical Innovation
Air-delivered Bombs	Growth from the 500 lb. To the 2000 lb. bomb	Fat Man (Hiroshima) and Little Boy (Nagasaki) Nuclear Bombs
Spacecraft	Transition from a Mercury capsule on top of a Pershing missile to an Apollo capsule on a Saturn rocket	Space Shuttle for reusable launch, reentry, and human/cargo combinations.
Theater Missile Defense	Longer-range ground-based missiles	Strategic Defense Initiative (Star Wars) to disable threat missiles from space-based platforms
Global Communication	PBX-based telephone service expansions like voice mail, call transfers, and software-based number assignment	Voice Over IP systems that place all telephone services in computer software and eliminate the need for traditional services. This foundation can integrate voice, video, data, and business applications into one medium.