Monday, October 22, 2007

Book Review: Dealing with Darwin

Dealing with Darwin: How great companies innovate at every phase of their evolution. Geoffrey A. Moore. Portfolio Press, 2005. List $25.95, 288 pages.

Geoffrey Moore is well known from his two previous books, Crossing the Chasm and Inside the Tornado. Those presented models of innovation that explained the challenges of moving from a new idea to a new product in the market. In his new book, Dealing with Darwin, Moore moves beyond the challenges of getting into the market and discusses the types of innovation that are used by companies throughout the lifecycle of a product or service. The book is targeted at established companies, with established products, in established markets. Like Clayton Christensen and other innovation authors, he explores solutions that help established companies remain in their market dominating positions.

Globalization is moving many businesses and jobs to emerging countries like China and India. Moore claims that this is a major migration in the economy similar to others that have occurred over the centuries. Economic power has moved its focus from Italy to The Netherlands. From The Netherlands to France, Germany, and England and finally across the Atlantic to the United States. He claims that it is now jumping the Pacific to reach China, India, and other parts of Asia. Corporate innovation is one key activity that is required to retain business in America in the face of this global shift.

Moore’s innovation mantra for the book is, “extract resources from context and repurpose for core.” He differentiates the core value of a product or service from the context in which it exists. A company must invest its resources in the core, not in the context. Too many companies invest widely and at cross purposes, negating the effects of many of their investments. The result is less productivity and less leverage in the global market. He offers the golfing business of Tiger Woods as an example. Woods derives 90% of his income from licensing agreements with sponsors and only 10% from winning golf tournaments. Based on this distribution of income, some would argue that Tiger Woods should spend 90% of his time and efforts managing his licensing deals and 10% perfecting his golf game. However, Moore points out that Woods’ proficiency at playing golf is the core of the revenue machine. It is the quality of his game that makes it possible to earn the other 90% of his income. Therefore, he should focus his energy and time on his core, the game of golf, and allow others to worry about the licensing deals, which represent context revenue.

Applying this example to companies, Moore suggests that each company must identify its core. Once that is done, they can determine which type of innovation is appropriate to maximize their effectiveness in the market. Moore suggests that companies fall into four major “Innovation Zones” and that there are fifteen different flavors of innovation, each of which plays a different role based on the placement of the company within the major innovation zones. The zones are labeled: Product Leadership, Customer Intimacy, Operational Excellence, and Category Renewal. In the Product Leadership zone, new products and services are being created and face the challenges presented in Moore’s two previous books. In this zone, innovation should focus on making better products and identifying the sweet spot of the customers’ needs. In the Customer Intimacy zone, products and services are established and the competition is focused on customization that will draw market-share from competitors. The Operational Excellence zone also deals with established products, but focuses on the supply side of producing and delivering the product. It calls for innovation in processes, integration, and cost reduction. Finally, in the Category Renewal zone, companies must gracefully exit from products that are at the end of their life. Companies should look for ways to loop back into the Product Leadership zone with replacements for mature and declining products.

Moore provides fifteen flavors of innovation, each aligned with one of the four innovation zones and illustrated with short vignettes from companies that have successfully implemented it. In Moore’s opinion, there is a flavor of innovation that is appropriate and effective for any product in any phase of its lifecycle. The book brings together a number of management strategies and re-labels them as innovations. It does a good job of demonstrating that opportunities for innovation exist in all markets and for all products.

Dealing with Darwin is a natural extension of Moore’s two previous books and provides an interesting model of innovation opportunities for products and services at all phases of their lifecycle.

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Book Review: Dragons at Your Door

Dragons at Your Door: How Chinese Cost Innovation is Disrupting Global Competition.
Ming Zeng and Peter Williamson. Harvard Business School Press. 2007. List $29.95. 204 pages.

Ming and Williamson explore the power of the cost advantage that China has in manufactured goods, and the way they are leveraging this to become global competitors in the 21st century. We are accustomed to the fact that American and European companies are off-shoring much of their production to companies in Asia. This has allowed electronic, textile, plastic, and a host of other goods to be offered to consumers at significantly lower prices in recent years. It has also created a very large trade imbalance with Asia. All of this is foundation material which Ming and Williamson use to explore the position of China in future international business in Dragons at Your Door.

The authors suggest that this cost advantage is a disruptive innovation of the type introduced by Clayton Christensen in Innovator’s Dilemma. Chinese companies are outgrowing their role as the world’s manufacturing facilities and are extending their reach to the distribution, retailing, services, R&D, and branding of products. These moves have already begun in a number of global industries, but have just begun to extend into the American retail sector where they are evident to the average consumer. Companies like China International Marine Container Group (CIMC) and Haier are becoming true international companies, supplying both their native country and the rest of the world. To do this they have begun exercising strategy, financing, partnerships, and acquisitions “in the Western style”. These companies are aiming to be international competitors, not simply Chinese suppliers to western international companies. This move will redirect significant profits from the western integrators, branders, and distributors into the hands of the Chinese manufacturers turned full-service competitors.

At the root of this expansion is the cost advantage of labor in China, as well as government support of the expansion. The authors cast this as a disruptive innovation in the Christensen style. But it appears to be more of a competitive advantage ala Michael Porter. In his works, Porter argues that a company can either compete on cost or on unique capabilities. The Chinese companies profiled are currently basing their strategy on lower costs, which has a limited duration. But, they argue that this is just the beginning of a more full-featured advance that includes R&D, branding, and unique product features based on Chinese intellectual property. Their prime example of this is Dawning Computer who offers low-cost, high performance computers (HPCs) based on the intellectual property of China’s Institute for Computing Technology (ICT).

Ming and Williamson point out that Chinese companies are not well prepared to compete in all industries or product classes. Their cost strategy works best when an industry is well established and has a dominant product design. Given this situation, Chinese companies are in a position to imitate that design at a lower cost as the basis for their competition. In industries based on the complex integration of intangible assets like IP and branding, the Chinese competitors are not prepared to mount an effective opposition.

The authors’ prescription for western companies who want to defend against this attack is three fold: (1) begin your own internal cost innovation program, (2) give a global mandate to your Chinese subsidiaries to beat their Chinese competitors at this game, and (3) build alliances with the Chinese dragons to strengthen your global competitiveness.

The story of the emergence and growth of China is not new. It follows a pattern that has we have seen from Japan and that will probably be repeated by Eastern Europe in the near future. Once an international firm gains access to the markets of a rich country it continually expands its ability to win business there. Just as Japanese electronics and automobiles are known for their high quality, Chinese industries will probably achieve a similar reputation over the next decade.

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Book Review: The Future of Management, by Gary Hamel

The Future of Management. Gary Hamel with Bill Breen. Harvard Business School Press. 2007. List $26.95. 269 pages.

Hamel opens by explaining that we are running 21st century companies using management ideas and principles that are often 100 years old and were created by “long dead theorists”. These ideas began with Taylor’s principles of scientific management and largely focus on creating static structures that can improve productivity and quality of products that change only gradually over time. At this point in history, however, these ideas are too static, too regimented, and too myopic to be effective among the very dynamic, disruptive, and shifting opportunities that present themselves.

Hamel’s historical analysis of management points to the following list of practices which have evolved over the last century: setting and programming objectives, motivating and aligning effort, coordinating and controlling activities, developing and assigning talent, accumulating and applying knowledge, amassing and allocating resources, building and nurturing relationships, and balancing and meeting stakeholder demands. All of these are sensible, logical, and seemingly effective. But inherent in this list is the assumption that the external environment is largely static and can be operated on in the same manner repetitively and with cumulative effect.

Although the word does not appear in the title, Hamel has written another innovation book. He insists that productivity and quality cannot be the basis of advantage in the 21st century. Companies that hew to these old measurements will become more effective at operations and with products that are increasingly obsolete. Hamel insists that companies must adopt management practices that are centered on innovation and adaptability. He presents a number of different management principles for adaptability. First, life is about creating variety, not enforcing standardization. Second, market forces within a company enable flexibility. A market environment allows innovators to be creative and attracts the types of people that companies need in the present and future. Third, leaders are accountable to those being governed and everyone has a right to dissent about the direction of the organization. Leadership is actually distributed throughout the organization, not resident at the top. Fourth, the mission or the organization really does matter. Modern organizations must be in pursuit of goals that are meaningful to the employees and for which stakeholders are willing to adapt their behavior toward the achievement of those goals. Fifth, diversity of skills and perspectives begets creativity. Organizations must structure themselves so that information and ideas can flow everywhere and come together in unexpected patterns. Serendipity in idea combination will create opportunity, value, and advantage.

In building these ideas, Hamel draws on case studies of Whole Foods, W.L. Gore, and Google. He also turns to lessons learned by IBM in its most recent business transformation. This is an innovation book, but Hamel uses it to challenge the management practices that have evolved over a century and then proposes replacements that may be more effective in the present and future. Those of us who have spent decades in traditional organizations resonate with the established practices that Hamel has distilled. But we are also aware of the limitations that those impose and wonder about ways to incorporate new practices within the old. Hamel suggests that an entirely new set of practices is needed and that they will be more effective at running a business in the future than those put forward by dead theorists. As practitioners we can choose to experiment with Hamel’s new practices or we can choose to ignore them and carry on with our existing practices. Given the extreme changes in the global business world, it appears that sticking with the past will put your company in competition with low-cost providers around the globe. On the other hand, Hamel’s practices will put your company in competition with global innovators who create products with much higher margins. The best choice seems to stem from the business strategy of the company and its plans for its own future.

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Wednesday, October 17, 2007

Simulation as the Preferred Form of Communication

[Cross-posted from ModelBlog]
Anthony Townsend at the Institute for the Future believes that "simulation will be an innate vocabulary for tomorrow's consumer, worker, soldier, and educator. They will see the world and describe it in terms of simulations in the same way that my parents used written essays and I use PowerPoint. It may well become their preferred mode of visualizing and interacting with data."

To make this possible the simulation and gaming community have to create simulation construction tools that are as readily accessible as PowerPoint is today. It has to have a similar ease of use, ubiquity of access, and accessible price point.

These tools also require/drive a data standard, which could be community generated as was XML, or commercially generated as is the MS Office Document format.

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Monday, October 01, 2007

Innovation Books

There is no shortage of books on innovation - they grow like weeds in the business section. Every business professor or management consultant knows that the word "innovation" in the title is good for a 10,000 item boost in sales right out of the gate. You and I have both read a number of the really flat stinkers that just say "do things differently", or "defy the status quo", or "invest in R&D", or "create cross-functional teams" ...

I have compiled a short list of some of the books that really have something valuable to say. This list will have to grow because there is an occasional flower among the weeds every year.

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