Continue reading »]]> There are two basic types of innovation and of innovation management which we typically distinguish:

• Innovations within the existing business model: Nintendo´s Wii is an example of this type of innovation. It is a typical (radical) product innovation within an existing business model.

• Innovation through a new business model: Zara is an excellent example.

Publications on innovation and innovation management often are only concerned with product innovations, i.e. innovations within the existing business model. This is definitely too short-sighted. As a consequence of ignoring business model innovations, a major source of innovation would not be detected by the company´s radar screen. In the period from 1997 to 2007, 26 companies which were founded since 1984 have entered the American Fortune 500, and more than half of them, i.e. 14 companies did so through a business model innovation (Johnson 2010).

The meaning that people attribute to the term “business model” varies greatly. Frequently the term business model is used as an equivalent to profit model. But this definition is much too narrow. To explain why, I give you just one example.

When Southwest Airlines launched in 1960, it was successful against the established traditional airlines because its innovative business model diverged from that of its competitors in many respects, with differences in the profit or revenue model being only one part. At least as determining for the success of the Southwest Airlines business model was that Southwest Airlines offered its customers major time savings due to its direct point-to-point flights and a much friendlier service, and that Southwest Airlines built excellent relations with its employees which resulted in, for example, outstanding employee productivity which in turn allowed a generous employee compensation.

A business model is a description of how a business creates and delivers value, both for the customer and for the company. It is a short-hand description of the business of a company or business unit. The description is at a high level of aggregation and provides a quick “big picture” overview. If we describe the business model of a specific company we focus our description on those components that are the most important for the value creation of the company, and that set the business model apart from the others.

A business model consists of multiple components. I use a description with four main components (Johnson 2010). The first and most important component of a business model is the

· customer value proposition.

As the term indicates, value must and can only be judged from the customer´s or consumer´s perspective.

The other 3 main components are:

· key resources

· key processes, and

· profit formula.

These four main components of a business model can be broken down in sub-components. In the following I use nine sub-components.

This way of describing a business model lends itself very well to its practical use (see also Osterwalder, Pigneur 2010), as I will now illustrate by means of the Zara business model:.

Fig. 1. Zara business model (4 components, 9 sub-components)

Often established businesses do not find it easy to describe their business model. But this is the first step needed before a company may start thinking of changing its business model, or about introducing another business model in parallel. The above 4-component/ 9-subcomponent model should facilitate the identification of one´s own business model.

Once this is done, we can also begin checking to what extent our own model differs from that of competition (Kim and Mauborge 2005) as we do here with the Zara business model. On the left we have listed Zara´s key differentiators vs. competition on the market side, on the right Zara´s key differentiators on the supply chain side.

Zara business model

Fig. 2. Zara business model in comparison to that of competition

Based on this visualization of a business model we can see: the product offering is only one sub-component of the business model. Accordingly, a product innovation is only a subset of a business model innovation.

For simplicity reasons, in the following I will, however, treat product innovations and business model innovations as if they were on the same level. By product innovations I mean innovations that mainly concern the products or services as they are visible to the customer. Business model innovations, instead, combine existing products with the other components of the business model in new ways.

In accordance with this definition, product innovations are not a necessary part of a business model innovation. Not to mention patents. This equally applies to Zara as to South West Airlines. Or think of the Aldi discount chain. Also in this business model innovation, product innovation or patents played no real role. This does not mean that a simultaneous business model innovation plus product innovation such as Apple´s iPod does not hold even more success potential.

Existing companies mostly pursue one dominant business model which can be called a company master business model. From the perspective of the market, established companies can engage in business model innovation in two ways, i.e. by introducing
• a new business model, which differs from its existing company master business model. This, for example, Microsoft did with the launch of its Xbox 360 game machine with the Xbox Live online gaming service.
• innovative products or services within their existing company master business model, competing with existing business models. Procter & Gamble, for example, tried this with the Dryel textile cleaning kit, which it sold to the consumer via its established retail trade channel. Dryel was meant to enable the consumer to cleanse her delicate fabrics herself at home (new business model). So far, she had brought her delicate fabrics to the dry-cleaners (old business model).

The assessment whether a business model is new to the world and therefore a business model innovation can only be made from the perspective of the market and the customers. What they regard as such is what counts. P&G´s master business model, for example, is to sell branded and advertised products, not services indirectly to the private consumer via the retail trade channel based on its five core competencies: consumer understanding, innovation management, brand-building, go-to-market capability, and scale. If existing companies such as P&G launch an innovation within their existing company master business models, and if the consumers view the innovation and its business model as an innovative business model because such a business model did not exist before then this counts as a business model innovation. Therefore Crest Whitestrips, P&G´s at-home tooth-whitening innovation, which competes with dentist bleaching (old business model), and which in the end was also sold via the familiar retail trade, is a business model innovation (see the following figure).

Fig. 3. Innovative Business Models: the External View Counts

This figure describes business models (BM) both from an external and an internal perspective. Nestle´s Nespresso coffee system is a new business model both for Nestlé and for the outside world, and therefore a business model innovation. Crest Whitestrips, although in the end not being a new business model from an internal perspective as P&G´s master business model is being used, is a business model innovation for the outside world. Nestlé´s Dolce Gusto coffee system is neither new from an internal nor an external perspective as it is belatedly launched in the traditional trade channel after the introduction of similar coffee systems by competition (Sara Lee´s Douwe Egberts, Kraft etc.).

Established companies hesitate to change their master business model if they have been successful so far (Markides 2008). This is understandable as the risk of a complete business model change is huge. This, however, does not speak against launching a business model innovation in parallel when the established company

enters another established market because this is often the only promising method to unseat entrenched competition (see Microsoft Xbox)
enters and scales up a new market which is just forming.

Often established companies launch new business models in parallel to their existing business models out of defensive considerations. The management of these parallel business model innovations is not to be underestimated. It is a big challenge. Typically separate business units are assigned responsibility for the management of the new business models. In 1994, United Airlines tried to defend itself against the upcoming Southwest Airlines with the launch of United Shuttle, and Continental with the introduction of Continental Lite. Both defenses were not successful.

Because of all the above, in the real business world we can observe many more sequences of product innovations by established firms than sequences of new business model introductions or changes of business models. Often, if a new business model has been introduced, it is followed by a large number of product innovations within this new business model. See, for example Apple. After the introduction of its iTunes software + iPod hardware + iTunes Music Store business model innovation, it launched a long series of iPod innovations followed by the iPhone and the iPad.

Another example is Toyota, whose cars were at first very rudimentary and whose business model was very traditional. Toyota’s innovation was the “Lean” business model which started off with the Lean Manufacturing System and to which was then added the Lean Product Development System and a Lean Delivery System. The cars that Toyota brought forth with this system distinguished themselves at this stage by a very good value for money, excellent quality and high customer satisfaction. But they were not yet impressive from a technological nor design standpoint. Toyota achieved design and technological breakthroughs with the launch of the Lexus (1989) and of the radical innovation Prius hybrid (1997), which helped to burnish Toyota´s image as a technological and environmental leader.

Excerpt from:

Wentz RC (2012) The Innovation Machine, CreateSpace

Other Sources:

Johnson MW (2010) Seizing the White Space, Harvard Business Press, Boston

Kim WC, Mauborge R (2005) Blue Ocean Strategy, How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business School Press, Boston

Markides CC (2008) Game-Changing Strategies. Jossey-Bass, San Francisco

Osterwalder A, Pigneur Y (2010) Business Model Generation, John Wiley & Sons, Hoboken

Continue reading »]]> If you want to embed in your company an innovation management the way how innovation machines such as Google, Microsoft, Amazon, LG Electronics, P&G, Intel, Whirlpool do it, and if you want to implement changes in your organization such as the transformation into a serial innovator you meet with resistance because you encounter forces that want to maintain the status quo. An inspiring vision will enable you to overcome this resistance whilst an authoritarian decree will not do.

These are the characteristics of an inspiring vision (see also Kotter 1996):

• Imaginable: conveys a picture of the future
• Desirable: appeals to the long-term interests of the stakeholders, has a moral power
•  Feasible: realistic, attainable but ambitious goals
•  Focused: provides clear non-contradictory guidance for decision-making
• Flexible: general enough to allow individual and alternative responses under diverse or changing conditions

Communicable: can be explained in half a minute.

On the last point of communicability, I am more demanding than other authors. In my view it is important that all members of the organization including those on the lowest rungs can play back the vision of the company. Because the vision is a major tool for aligning the organization and for driving innovation. For this, the vision has to be short and simple. In my work as a business angel, I as well as my colleagues expect start-up teams to convincingly spell out their proposition in a twenty-second “elevator test”. Why should we grant more than half a minute for the explanation of a vision? As I talk about vision I want to clarify upfront that I am against differentiating between vision and mission. My reason? Keep it simple.

A vision is meant to give direction to an organization. It must inspire or electrify people. Here are seven examples of visions from innovation machines.

• Google: Google´s mission is to organize the world´s information and make it universally accessible and useful.
• Microsoft: At Microsoft, our mission and values are to help people and businesses throughout the world realize their full potential.
• Amazon: Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.
• LG Electronics: LG continues to pursue its 21st century vision of becoming a worldwide leader in digital that ensures customer satisfaction through innovative products and superior service.
• P&G: We will provide branded products and services of superior quality that improve the lives of the world´s consumers.
• Intel: At Intel, we constantly push the boundaries of innovation in order to make people´s lives more exciting, more fulfilling, and easier to manage.
•  Whirlpool: Innovation from Everyone and Everywhere.

I do not want to express a preference for any of these seven visions but want to point out the inspiration inherent in Google´s vision. When Google´s CEO Eric Schmidt was asked to give an estimate of how long it would take Google to organize all of the world´s information, he replied: “It will take, current estimate, 300 years” (Stross 2008).

Note: people join companies and stay with them because of their visions! Just listen to Sheryl Sandberg, formerly Google´s Vice President of Global Online Sales and Operations up to 2008 before leaving for Facebook: “I went to Google because Google had a higher mission, which is to make the world´s information freely available” (Auletta 2010). Sometimes people even join a company with a powerful vision despite the fact that they would earn more somewhere else. Nothing underlines more the importance of an inspiring vision, in particular for inspring your innovation management.  

A vision can only achieve its purpose if it is effectively communicated. Part of an effective communication is that a vision is repeated again and again until it finally sinks in (do not underestimate the number of times it takes), and that it is communicated by multiple means and in multiple forums (Kotter 1996). An inspiring vision that is shared by all employees is the most promising base for a successful serial innovation management.

Excerpt from:

Wentz RC (2012) The Innovation Machine, CreateSpace

Other Sources

Kotter JP (1996) Leading Change, Harvard Business School Press, Boston

Stross R (2008) Planet Google, Free Press, New York

Auletta K (2010) Googled, Virgin Books, London

Continue reading »]]>

Which are the most innovative companies in the world? The Innovation Survey by Boston Consulting Group attempts to provide an answer. Ten companies are named the leading innovators: Apple, Google, Toyota, GE, Microsoft, Procter & Gamble, 3M, Walt Disney, IBM and Sony. What can we learn from these innovation leaders in respect of their global innovation management?

Procter & Gamble has a real global presence. It exploits the advantages of its global presence to the fullest extent. Its Japanese competitor Kao has made this painful experience several times. Kao had successfully launched its Quickle Wiper dusting mob in the Japanese market already in 1994.  In the following years Kao introduced it in other Asian countries. However, in many parts of the world Kao has no active business in the household segment. This turns out to be a major strategic disadvantage. Because the global competition keenly observed Quickle Wiper´s success. Starting in 1999 Procter & Gamble launches a similar product under the new brand name Swiffer in the USA, in Europe, and in many other countries. In those territories in which Quickle Wiper is not available Swiffer is being celebrated as the great innovation, and it is hugely successful.

Global innovators steer their innovations via global innovation centres. But they increasingly distribute them over the whole globe. There are several important reasons favour this organizational set-up: the respective regions “feel” a greater importance; the employees working in the regions can be offered more interesting career opportunities; the innovation centres of individual product divisions can be placed in those countries where the local divisions of the company have specific strengths, or where they have to compete against particularly strong competition; centres can be located where there is lots of talent, which furthermore often costs less. General Electric´s Health Division these days has its magnet resonance tomography machines, which normally cost millions of dollars, developed in its innovation centre in Shanghai at a target price of half a million dollar, with the option to later export these machines to other countries. Even Google is decentralizing its innovation activities away from its central innovation centre  in Mountain View, and it already has 25 F&E centres worldwide.

A fundamental recommended action to improve global innovation is: “Lift treasures via global communication”. It is amazing to see how often undiscovered treasures are ”dozing away” in the companies. Oftentimes the knowledge of successful company innovations in other corners of the world is underdeveloped with the ensuing risk that the wheel is going to be re-invented. Top innovators such as IBM, 3M, P&G, GE and Toyota have become aware of this potential waste, and they are fostering the worldwide exchange of information and knowledge. Their global communication occurs either online or offline, on a permanent basis or event-driven.

IBM´s  “Innovation Jam” is a good example of an event-driven online communication. Worldwide, IBM employees, family members and customers are invited to a moderated online brain-storming session. 140 000 persons participated last year, and 37 000 innovation ideas were generated.

Despite the growing weight of the online communication, the classic face-to-face co-operation retains a high importance.  While incremental innovations to a certain degree can be managed by means of virtual innovation teams, radical innovations require the permanent co-location of the team members. That is why all 400 engineers of the IBM-Sony-Toshiba design team which developed the “Cell Chip” for e.g. the Sony Playstation 3, were pulled together in one location, i.e. IBM´s Design Ccntre in Austin, USA.

Idea generation encompasses the adoption and the adaption of existing ideas, and the creation of original new ideas. In many corporations the “Non Invented Here” syndrom gets in the way of adopting or adapting available ideas.  The leading innovators turn “Non Invented Here” on its head and make it a badge of honour.

Global innovation machines give a global dimension to their search for existing ideas. Already at the end of 1997, 3M had 28 active projects with Russian research institutions. Key for this initiative was the insight that after the collapse of the Soviet Union a third of all researchers with a Ph.D. degree worldwide lived in the territories of the former Soviet Union. P&G has picked up on the idea of an external idea and solution sourcing, and has executed it with an up to then unseen consequence.  For this it has given birth to the Connect + Develop (C+D) Organisation. Offline and externally, every member of P&G´s 75-men Connect+Develop team is establishing personal global networks via which P&G can then easily receive external ideas and solutions.

Additionally, P&G is in contact with hundred thousands of registered researchers and inventors through external online services such as Your Encore, NineSigma and InnoCentive in order to obtain solutions to well defined technical problems.  Mr. Clean AutoDry and Pringle Prints are examples of product innovations that P&G gained through Connect + Develop.

A global product design is another key success factor for a global innovation management. Empirical studies have proven that an international product development approach, which from the start incorporates the needs of all countries, beats a local product development approach. This is explained by the fact that the demands on the innovation project and the performance expectations of the innovation team automatically rise if a company benchmarks itself against the world-best competitors, and not only against the best local competitors. The new Camry which Toyota introduced globally at the beginning of 2006 exemplifies a globally designed and implemented world car. Indicative is Toyota´s motto for its world car: “Global best, local best”.

Innovators with a strong global innovation management synchronize their innovation processes globally. Instead of a product launch in only a few countries (see Kao), and in lieu of a gradual roll-out of a new product across the globe, innovators with a top global inovation management launch an innovation into the whole global market within a short time window. The global co-ordination in Toyota´s case occurred electronically, and this was complemented by regular international face-to-face meetings. During the whole global innovation process representatives of the affected countries and functions were continuously providing their input, starting from the development of the car vision and extending up to the design reviews, the finalization of the technical master drawings and the joint pilot production in the Motomachi factory in Toyota City. Procter & Gamble, too, today rolls out its innovations much faster than formerly, i.e. in 18 months instead of three years.

Global organization, however, must never mean forgetting the local side. Global enterprises must try hard to involve all business units and employees in their global innovation management. This above all implies involving the local subsidiaries in the early process phases of idea and insights generation, and in the permanent review of the used insights and the newly developed products during the whole innovation process.

Noteworthy in the above discussion of the global innovation machine and of global innovation management is the absence of Apple. This no.1 innovator according to the BCG Innovation Survey, which outshines all others based on its superior product design and superior product usability, until now seems to be rather a hesitant supporter of a growing globalisation of innovation management. Apple is still very centrally organized with a strong US focus, and it is still relatively slow in rolling out its innovations worldwide. This could particularly be observed in the context of the global introduction of the “software” innovation iTunes Store, whose global roll-out is by far not yet completed. And equally, although to a somewhat lesser extent, in the context of the launch of the iPod and of the iPhone. It is pretty safe to speculate that Apple will increasingly exploit the potential of global innovation management in the future.

Dr. Rolf-Christian Wentz

Sources:

• Wentz RC: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007

• Wentz RC: Die globale Innovationsmaschine, Frankfurter Allgemeine Zeitung, July 21, 2008, p.18 und FAZ.Net of July 21, 2008: http://www.faz.net/IN/INtemplates/faznet/default.asp?tpl=common/zwischenseite.asp&dx1={0611CAF7-DA3F-E528-2E9B-6E84C1D26E02}&rub={CE5E4A7C-4D51-4EF4-9385-D627A87356A9}

Continue reading »]]> To launch innovations faster and still successfully. That is the objective of  Fast Innovation. For this the customer must be understood in depth. Kimberly-Clark, the Innovation Machine Procter & Gamble, Pepsi Co. and General Mills demonstrate which innovative methods help in discovering consumer insights faster. In their innovation management they make use of a Virtual Store.

For the sake of approaching the “truth” in the consumers´ opinions, the “tree of truth” offers diverse methods. These methods, proceeding from the top to the bottom, become ever more exact and unearth progressively better consumer insights  Top-innovators increasingly replace methods of consumer interviews (at the peak of the tree) by methods of observing the consumer (at the bottom of the tree).

Fig. “Tree of Truth”

This minimizes the risk of conditioning the consumer. Those companies that can observe their consumers without them noticing it do have optimum precondistions. In particular if they can observe their customers not only when they select a product in the store but if they can also observe them unnoticed in their situations of consumption or usage (e.g. restaurants, mobile phone companies).

The product selection at the shelf is typically the first critical moment, or, as P&G declares, „the first moment of truth“, in order to win over the customer. Will the consumer pick the innovation and put it in her shopping basket ?

Part of the innovation management of a company is to explore this critical moment in a real-life situation of a shop. For this purpose, one or several nicely looking mock-ups of the new product or rather of its package need to be made, and the in-store test needs to be agreed with the store manager with a sufficient lead time. In case it turns out in the test that the package of the innovation needs to be improved, it has to be modified, and the test needs to be repeated.

A modern-day alternative for the innovation management is a Virtual Store. It accelerates the innovation process considerably in the spirit of Fast Innovation, and it possibly saves cost.

Kimberly-Clark (KC) and the innovation machine Procter & Gamble (P&G) are two examples of companies that have built such a Virtual Store  for purposes of their innovation management and in order to generate valuable consumer insights. In Neenah, Wisconsin, Kimberly-Clark opened its Innovation Design Studio last year. The center utilizes a proprietary virtual reality system in order to help KC in generating critical consumer insights fast. Consumers enter the three-angled Virtual Store through the open side. They can stroll along the shelves of this interactive 3-D store model, they can enter their purchase descisions via a touch screen, and can react to virtual displays and virtual promotions. Sophisticated eye-tracking technology is measuring the direction in which their eyes are looking and the level of engagement of the consumers in response to the stimuli in the store. KC can test new ideas via its Virtual Store without a significant time investment in the individual test set-up and without incurring the cost of the mock-ups of the new product. Within a short time span the virtual shelf can be “re-programmed”. How it feels walking through Kimberly-Clark´s Virtual Store is demonstrated by the following video by ABC ( Click on this link ).

The innovation machine Procter & Gamble, too, uses the method of a Virtual Store in its innovation management in order to accelerate the innovation process in the spirit of Fast Innovation, to more rapidly test innovations with consumers, and to gain consumer insights faster. Sine the beginning of this decade P&G has been working on a Virtual Store. The first Virtual Store for purposes of the innovation management was opened by P&G in the Beckett Ridge Innovation Center in Cincinnati. P&G has another Virtual Store in Weybridge, Surrey, UK, which also makes use of the Cave 3-D technology. Packages of new products can be easily ”placed”  on the virtual shelves. The consumers can walk though the store, can stop in front of the virtual displays, can “take” products from the shelves, turn them in order to read the ingredient labels, and buy them if they wish. P&G researchers compared the test results of the Virtual Store with the results that traditional methods would have yielded. They are satisfied that the virtual simulations generate results that are robust enough to be useful. P&G is still working on removing the remaining “reality barriers”. For instance, the computer mouse that had been used to “pick” products from the virtual shelf is being replaced by a virtual trolley plus glove.

But besides the rather expensive method of building a Virtual 3-D Store which the consumers can physically enter there are more affordable virtual methods in innovation management to generate consumer insights faster. One such method is leading the consumer through a virtual store at the computer screen. Companies such as Pepsi Co. and General Mills use this possibility for their Fast Innovation.

(c) Rolf-Christian Wentz

Sources:

• Wentz RC: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007
• Kimberly-Clark: Annual Report 2007, www.kimberly-clark.com
  
• Kimberly-Clark: Investor Newsletter, www.kimberly-clark.com
• Lafley AG, Charan R: The Game-Changer, Crown Business, New York 2008
• Fasig LB: P&G Innovation brings diapers to market twice as fast, www.cleveland.com, March 10, 2008
  

Continue reading »]]> Can the organizational structure of a company contribute to the acceleration of the innovation management in the spirit of Fast Innovation? The innovation machines Toyota, Procter & Gamble, GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell and Whirlpool answer this question in the affirmative. In addition to an effective and efficient innovation process they have adopted an organizational structure of innovation that enables them to launch innovations faster.

In organization science we distinguish between process organisation and organisation structure. Over the last few decades the process orientation of enterprises has continuously gained priority. Accordingly, in the context of innovation management the innovation process and its optimization received maximum attention, above all also in relation to the question how innovations can be launched into the market-place more rapidly in the spirit of Fast Innovation. Due to this, the organizational structure of innovation management receded a bit into the background. Which is not justified.

The innovation machine Toyota as well as Procter & Gamble , GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell and Whirlpool have adopted an oranizational structure of innovation that significantly facilitates Fast Innovation.

They have taken the following seven key actions in order to structure their innovation management and organization for Fast Innovation:

1. Delegation of Decisions to Innovation Teams

Despite best intentions, if all important decisions in the innovation process are made dependent on (top) management´s agreement a time delay will result.Therefore decisions need to be delegated to the innovation team in order to avoid these delays and enable Fast Innovation. The consent of (top) management is in this case only required at the milestones or gates of the innovation process. The members of the innovation team should be available to the team with 100% of their time in order to get the innovations to market as quickly as possible.

Nowadays most companies use innovation teams for innovation management. The degree to which decisions are delegated to the teams and the degree of availability of the members for the innovation teams differ, however. Big companies such as Toyota, P&G, 3M, IBM, Sony, Whirlpool and others typically have fully dedicated innovation teams with 100% availability of their members..

2. Integration of R&D into the Business Units

The organizational integration of the majority of R&D into the business units makes innovation management more effective. It fosters the collaboration with the other departments of the business unit and the orientation towards the customer (customer pull) in lieu of an exclusive focus on the technology (technology push). Furthermore it improves the preconditions for  Fast Innovation.

At the end of 2003, the innovation machine 3M restructured its innovation organization and decentralized its R&D organization along these lines. Consequently, 3M´s technicians got closer to the business and the market. 400 members of 3M´s central laboratory were assigned to the divisional labs. Simultaneously, the heads of the divisional labs who until then had a direct reporting line to the Senior Vice President, Research & Development got an exclusive direct reporting line to the divisional heads. Honeywell, too, restructured its R&D organization in a similar way at the beginning of this decade. Honeywell´s big R&D organization was broken up into four labs. Each of these labs was assigned to one of the four Honeywell divisions – Aerospace, Transportation Systems, Speciality Materials, and Automation and Control Solutions. This organizational structure of innovation management was designed to facilitate Fast Innovation.

3. Co-Location of Teams and Departments

Although we are living in a time of powerful electronic communication, the organization structure of co-located teams and co-located divisional departments maintains at least the same relevance as formerly. Co-Location fosters the integration of teams and departments and a free-flowing communication. By locating all innovation team members and relevant departments of a division in the same place, companies can make sure that everybody hears the same thing at the samte time. This way information does not get distorted. Spontaneous communication and exchange of ideas are facilitated. Co-location raises the probability that in the management of an innovation the necessities of the market-place and of the technology are simultaneously taken into consideration, and that the innovation gets to market faster.

Procter & Gamble is a fervent supporter of Fast Innovation and of organizing for innovation via co-location. So is Google. And IBM and Sony as well, even for globally composed teams. Under IBM´s leadership e.g. the IBM-Sony-Toshiba „Cell Chip“ Team, which comprised 400 team members and was charged with developing, amongst others, the high-performance chip for Sony´s Playstation 3, was located in one place, at IBM´s Sony-Toshiba-IBM (STI) Design Centre in Austin, Texas.

4. Central Innovation Teams

The management of disruptive innovations, and the management of innovations that will result in a new category or a new market or that will cut across multiple categories often necessitates the use of central innovation teams that are not assigned to individual divisions. Such a central innovation team then reports to a manager at the corporate headquarter. As an alternative organizational structure of innovation management central innovation teams are established at the divisional level, and they will report to the head of the division, and not to to the head of an individual category, product group or brand. Such central teams are mainly utilized in cases when the motivation and ressources of individual divisions, categories, product groups or brands are insufficient in order to get the respective innovation to market with maximum effort and at maximum speed despite the daily pressure and distraction from the established operation. In such cases an organizational structure of innovation management which allocates the responsibility for getting the innovation project off the ground to a central innovation team and thus enables Fast Innovation is superior to a decentralized project organization. For a successful innovation management it is, however, important that the innovation project from its very beginning has a division, category, product group or brand assigned as its sponsor and “home” for future commercialization.

Procter & Gamble has an organization of central innovation teams at the corporate level which goes by the name  Future Works. At the business unit level its central innovation teams belong to the New Business Development Organization.

5. Central Innovation Funds

The innovation projects which later will be led by central innovation teams in most cases need a special budget to get funded because the divisions shy away from making funds available given the typically high risk of such projects. Without a central innovation fund these innovations would not be launched fast, if they would get to market at all. Fast Innovation would be impossible.

P&G has established the P&G Corporate Innovation Fund (CIF) for such purposes which provides financing for the development of disruptive innovations and of new businesses. P&G´s innovative Crest Whitestrips were, for instance, seed funded by the CIF. Also GE´s CEO disposes of a central Venture Fund that is to finance so-called „Imagination Breakthroughs“, i.e. innovations with expected incremental annual sales of at least 100 million US$. When Whirlpool´s CEO decided around the turn of the century to transform his company into an innovation champion he as a first step established a central seed fund and, additionally, seed funds for each of Whirlpool´s regions in order to quickly test new ideas by means of prototypes in the spirit of Fast Innovation. Hewlett-Packard´s innovation management possesses a central innovation fund called Innovation Program Office (IPO) which has a mission similar to P&G´s Corporate Innovation Fund.  Honeywell´s innovation management, too, has a central innovation fund which they name Honeywell Growth Board. At the divisional level Honeywell funds its central innovation teams via its Venture Funds.

6. External Interface for Open Innovation

Open Innovation is a core strategy of innovation management in order to get innovations to market more rapidly and enable Fast Innovation. In order to execute Open Innovation and to channel external solutions and ideas into the company, innovation management needs an effective external interface.

For this purpose P&G has established its External Business Development Organisation and its Connect & Develop Organisation. The Mission of these departments is to realize the innovation potential, which slumbers in the outside world, via the development of external networks. Not the least because of its Open Innovation P&G has dramatically increased its innovation speed. An innovation which in the past would have taken there years or more to get to market these days can be rolled-out globally within 18 months. DuPont, too, has an external interface such as P&G´s which it calls DuPont Ventures.

7. Merger & Acquisition Department

A special organizational structure of managing for Fast Innovation via Open Innovation is the M&A department which is involved in the acquisition of innovative companies. Via acquisitions an enterprise can signficantly strengthen its innovation management, and can be in the market-place with innovations much faster.

The role model for this M&A strategy of innovation management is Cisco. Since its first acquisition in 1993, Cisco up to now has acquired 126 mostly young companies. Most high-tech companies own strong M&A departments in order to accelerate their innovation activities in the spirit of Fast Innovation. So do e.g. Google, Microsoft and IBM.

(c) Rolf-Christian Wentz

Sources:

• Wentz RC: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007
• Snyder NT, Duarte DL: Strategic Innovation: Embedding Innovation as a Core Competency in Your Organization. Jossey-Bass, Hoboken, 2003
• Lafley AG, Charan R: The Game-Changer, Crown Business, New York 2008

Continue reading »]]> On Thursday, the innovation machine Apple announced the iPhone 2.0 Software Upgrade for its iPone. By virtue of this upgrade, Apple wants, as completely as possible, to equip the modern mobile user with applications that he is used to from his home or office. The innovation machine Google pursues a similar objective with its Android platform that Google presented on November 5 last year. Noty only the innovation machine Apple and the innovation machine Google have identified this customer need but also the innovation machine Nokia, Microsoft, Research in Motion (RIM), Garmin, and, of course, the telcos. Every company is sharpening its innovation strategy. In which innovation arena should the company compete, from which one should it abstain? Fast innovation is required in innovation management, i.e. the new innovation arena is to be rapidly occupied and dominated through innovations. Open innovation with the help of external development partners is an important accelerator for that.

Apart from the demand by consumers living predominantly in the developed countries for the mobile use of those applications that they have so far enjoyed as stationary services, there is another big demand which in the future probably will even surpass the first need: in many emerging countries such as China and India the mobile phone or other mobile communication devices will represent the first and often the only contact point to the internet. The PC technology as access tool to the internet will often be leapfrogged in those countries. Today already more than three billion people worldwide are using mobile phones. Each year about one billion new mobile phones are sold compared to about 200 million PCs sold per year. This discrepancy will rather increase than decline. Each month e.g. the Indian and the Chinese mobile phone market each grow by about seven million new users.

The innovation management results not only in a convergence of technologies but also in a convergence of companies which often collide with each other for the first time as competitors in the new mobile innovation arenas. Competitors such as the innovation machine Apple, Google, Nokia, Microsoft, RIM, Garmin, and telcos such as Vodafone, AT&T or T-Mobile originate from diverse markets. Either they hail from the private consumer market or from the business customer. They have their original competence either in hardware, in software or in the management of telecommunication networks. There is now a notable shift in focus in the innovation management of the mobile market going on due to the appearance of the new competitors Apple and Google: away from hardware and network technology, and towards software.

Fig.: Origin and Core Competencies of Mobile Providers
The opportunities for innovation management in the mobile market are manyfold. Because the customers have the most diverse needs. The innovation strategy of the enterprise and the selection of the mobile innovation arenas determines
· where the innovation ressources of the company will be invested (and where not)
· ressources that may still need to be acquired
· the search territory for new ideas (and this precludes the idea search in excluded arenas)

Four factors are determining for the selection of the innovation arenas:
· Consistency with the overarching enterprise strategy
· Synergy with the existing core competencies
· Potential of the innovation arena
· Synergies of the innovation arenas with each other
If we analyze the innovation machine Apple and the innovation machine Nokia, Microsoft, Google, Research in Motion and Garmin in more detail we note a rather diverse distribution of core competencies amongst the functionalities that the customers are looking for:

Fig:: Demanded Functionalities and Core Competencies of the Main Competitors

While the core competencies of the innovation machine Apple rest in the internet (Mac) and music (iPod), Nokia has particular strengths in speech and photo technology, Microsoft in e-mail, internet, search, games (Xbox) and office applications (Office), and Google in e-mail (Gmail), search (Google Search) and navigation (Google Maps). The status quo of offered functionalities roughly looks like follows:

Fig.: Status quo of offered functionalities

Not yet all the functionalities are known that will be supported by Google´s Android platform and by Garmin´s announced new nüvifone. The first Android mobile phone is expected for the first half of 2008, Garmin´s nüvifone for the thrid quarter of 2008.

Mid-term we can, however, safely expect that all main competitors will define their innovation strategy such that they will cover all functionalities. Even those for TV and mobile payment although for these the innovation management of these main competitors does not yet provide any product offer (different from mobile phone manufacturers and telcos in Japan). An important question for their innovation management will be: should these functionalilties be offered in one universal product (Swiss-knife-approach) or via several specialized products like e.g. Apple´s iPod (music, video) or the specialized devices of other competitors that have not yet been mentioned here such as TomTom (navigation) or Nintendo (game console DS) und Sony (game console PSP)?

User friendliness will be a decisive criterion for the definition of the innovation strategy. The innovation machine Apple has repeatedly demonstrated with its innovation management what a success user friendliness and design can generate. It will be critical for the companies to fully understand the customer needs, to segment them and to priorize them. In the end the innovation management should (only) offer that bundle of functionalities in its product that is relevant for the respective user segment and which does not endanger the ease of use.

In order to occupy the selected innovation arenas, Fast Innovation is required. In the spirit of Open Innovation the competitors increasingly lay open their standards and operating systems in order to win over external software developers as partners for a rapid development of new applications. The social network Facebook has demonstrated Fast Innovation very well: it has dramatically and rapidly increased the attractiveness of its product by supplementing it with applications by independent software developers such as Slide or iLike. Besides laying open standards and operating systems, having an operating system that is free of charge will turn out to be a strong accelerator for its diffusion.

Google has sharpened its mobile innovation strategy, and with Android it has presented a platform for mobile devices that is completely open and free. Google has been offering its search software as a mobile applcation for years. But the Android platform is more: a Linux based operating system, which interacts with the hardware of the mobile device, plus middleware plus user friendly interface plus applications. Google´s Android business model is based on the generation of revenue through advertising, in partcular location-based advertising. Google has teamed up with 33 partners in the Open Handset Alliance (OHA) in order to propagate and support Android as an open platform for mobile devices in the spirit of Open Innovation. As of the second half of this year the first Android mobile phones are expected to hit the market. In the meantime Google has launched its Android Developer Challenge which offers 10 million $ in awards to those external software developers who develop the best applications for the Android open-source platform.

On Thursday the innovation machine Apple, too, took some important first steps towards opening up its innovation management. Apple has modified its innovation strategy, and will publicize the interface of its iPhone operating system in order to gain independent developers as Open Innovation partners. The latter are supposed to further heighten the attractiveness of the iPhone via their supplementary offers. On this project, Apple is cooperating with the leading venture capital firm Kleiner Perkins Caufield & Byers which has launched the $ 100 million iFund in order to invest in companies which develop market-changing applications and servies for Apple´s iPhone and iPod touch.

This is an important fine-tuning of Apple´s innovation strategy but Apple´s innovation management has not yet taken such a big step as Google with its Open Innovation strategy. The reason is Apple´s iPhone business model which at the moment is still very different: the iPhone operating system is not available for other hardware suppliers, and Apple cooperates in each country only with one telco as exclusive partner. The revenue of Apple´s iPhone accordingly does not derive from advertising but from the sale of the handsets, and a share of the iPhone communication revenue of the exclusive telco partners, and a share of the software revenue of the external software partners who will develop new applications for the iPhone.

Innovation management in a mostly closed system is still being pursued by the innovation machine Nokia which builds on its world-wide market leader status with 900 million sold mobile phones, and which is repositioning itself as an internet company through, amongst others, its Ovi internet portal. Via Ovi Nokia is now offering music, games, navigation services and the sharing of photos and videos to its consumers. Similarly closed are the still the innovation management systems of Microsoft und Research in Motion. Users have still to pay licence fees for their operating systems (e.g. $ 4.30 per device for Nokia´s Symbian operating system), and their interfaces have not yet been made public to a broader audience. Momentarily the operating system of the Symbian consortium, which is controlled by Nokia with its 47% participation, still holds a worldwide market share of 68% in the segment of the so-called smartphones. Microsoft´s Mobile software on the other side so far has not been able to progress beyond a market share of 12 % despite seven years of perseverant efforts. It will be highly interesting to observe when, under pressure from competition, these innovation machines will modify their innovation management by further opening themselves up to external software developers and other partners in the spirit of true Open Innovation. I suspect pretty soon. The innovation machine Nokia has already announced at least for its Ovi portal that it shall be opened up for external developers and hardware suppliers.

(c) Rolf-Christian Wentz

Sources:

• Rolf-Christian Wentz: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007
• Rolf-Christian Wentz: Last-to-Market: Apples Design Prämie.  Blog vom 1.12.07
• http://www.apple.com/pr/library/2008/03/06iphone.html
• http://www.kpcb.com/initiatives/ifund/pressrelease.html
• http://www.google.com/intl/en/press/pressrel/20071105_mobile_open.html
• http://ovi.nokia.com/ovi/app/ovi/web/index/
• http://www8.garmin.com/nuvifone/
• Jennifer L. Schenker: Who Will Control the Heart of Handsets ? businessweek.com 8.1.2008

Continue reading »]]> On January 10 the veil was lifted not only on one secret: Tata Motors, as expected, presented its disruptive innovation of the “One Lakh People´s Car“. The car goes by the name Nano (like Apple´s iPod Nano). At the same time large German automobile suppliers such as Bosch and Continental reveiled to what an extent they are involved in the disruptive innovation Tata Nano via their Indian subsidiaries. On this occasion India once more presents itself as an innovation centre. But what about Volkswagen´s innovation strategy ?

Tata Motors has fulfilled its promise. In its standard version the Nano will only cost about one Lakh = 100.000 Rupees or about 2.000 Euro. A price that so far no one could imagine as feasible. Having said this, one must add that the outer appearance of the Nano is really pleasant.

Figure.: Disruptive Innovation Tata Motors Standard Version

The innovation of the Tata Nano seems custom-tailored for the Indian market and other emerging countries. Through this disruptive innovation the chairman of Tata Motors, Ratan Tata, wanted to find a solution for the Indian family of four members. His consumer insight was that this family oftentimes is traveling on India´s streets with all four members somehow sitting on an unsafe motor-cycle. It should be possible, so he thought, to fulfill the need of this family for a safer and more comfortable transportation means in an affordable way.

The solution is now the Tata Nano, born by the innovation centre India and by the new innovation machine Tata Motors. Ratan Tata compares the Nano with the low-priced disruptive innovation of the Swatch watch in the watch market.

The Nano meets the Indian safety standards, in particular it is said to have passed the crash-tests from the front, the rear and the sides. The Nano fulfills the local emission norm Bharat III and the Euro- 4 emission norm, respectively. By doing this, the Nano is claiming to cause less emissions than an Indian motor-cycle. The gasoline consumption is a bit below 5 liters per hundred kilometers. This does not qualify for world championship in low gas consumption but is still a very good consumption value.

How did Tata Motors manage to make such a disruptive innovation happen at this price ? The following main factors have contributed to this:

• Focus on the essentials: as the current motor-cycle and scooter drivers are the main target group the Nano does without some expensive parts such as air bag (but it has seat-belts), ABS, car radio, power-steering and electric window lifts. Furthermore there is no air-conditioning in the standard model but in the luxury version.
• Creative innovative break-through thinking about product and business model. E.g. the speedometer is placed in the middle of the dashboard so that the same dashboard can be used for car versions with right-hand steering and left-hand steering. The door handles and door mechanisms aer identical on the right side and the left side of the car, once more in order drive the cost degression via scale. Tata Motos plans to decentralize the assembly of the Nano to a large extent and to involve independent franchisees in that.
• Efficiency increases of the processes. E.g. 30-40% of the Nano´s parts are being purchased via internet auctions. Metal parts are partly replaced by plastic parts that are not welded together but rather glued together.
• Unbeatable low wage costs at the innovation centre India.

German automobile suppliers play an important part in the Nano. It was already known that BASF contributes plastic parts to this disruptive innovation. To what a large extent Bosch and Continental participate in the Nano, this is the big surprise. Both companies have in the meantime developed their Indian subsidiaries into low-cost innovation centres. Bosch is equipping the Nano with fuel-injection technology, braking-system and car elecronics via its Indian subsidiary Mico. Bosch is said to provide about ten percent of the Nano components. Contintental contributes the gasoline pump and the fill-level sensor to the Nano from its Indian innovation centre and factory.

Given this large German share in the Nano, the question arises: and what is Volkswagen up to in India? How is it using the innovation centre India? Until today Volkswagen has very little presence in India, in particular in the ultra-low-cost segment. According to the Frankfurter Allgemeine Zeitung Volkswagen wants to compete in this segment. At the most recent IAA, Volkswagen presented the concept car “Up”. This car meets the most modern environmental requirements, and it should cost about 9000 Euro. But it is exactly this price which demonstrates that the “Up” will not be a serious competitor in the ultra-low-cost segment. A price of 9000 Euro would make the “Up” cost four and half times the price of the Tata Nano. The “Up” would therefore compete in a very different segment with an evidently much lower sales potential.

Fact is that Volkswagen is suffering from a serious time delay vis-a-vis Tata Motors in the ultra-low-cost segment. “Low cost demands maximum innovation capabilites. This fits well to a German company”, Bosch´s division head Scheider says. Why has Volkswagen so far not seen it the same way? VW spokesman Schröder opines that VW so far cannot imagine itself surfing the “wave of cheapness” as some of its competitors are doing. “We are looking through the European glasses, and try to transfer our know-how to India”. I suppose that this will turn out to be the wrong pair of glasses. For the Indian market and the local Indian needs rather the Indian glasses should be put on, and the specific advantages of the innovation centre India should be exploited. Somewhere else a VW spokesman is quoted saying that VW would not be able to realize such an Indian car like the Nano. The explanation: “Because our engineers are not capable of such technically lateral thinking as the Indians”. It is for this very reason that innovation leaders such as the innovation machine SAP or the innovation machine GE or Cisco transfered their respective innovation centre for low-cost products to markets such as India already some time ago, and why they employ local engineers at those locations who are used to this local ultra-low-cost mindset and who know the Indian market and its consumers inside out.

The comments made concerning Volkswagen´s innovation strategy certainly apply in a similar form to the yet unclear innovation strategy of the innovation machine Toyota.

Meanwhile Tata Motors is about to establish itself as a new innovation machine in the car market. On the innovation platform of the Tata Nano, Tata Motors is not only introducing a luxury version with e.g. air-conditioning but it is planning to also launch incremental innovations such as Nano versions with more powerful motors, with Diesel engines, with automatic transmission etc. in order to broadly occupy the ultra-low-cost segment. And then there are still Tata´s innovation concepts of hybrid cars, above all the radical innovation of a hybrid car with a combined compressed air + gasoline engine, which is being developed together with the small French company MDI. The Western car companies will have many reasons to beware.

(c) Rolf-Christian Wentz

Sources:

• Wentz RC: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007
• Wentz RC: Tata Motors´ Innovationsstrategie: disruptive Innovation „People´s Car (Volkswagen)“, Blog of Dec.30,07
• Christensen CM: The Innovator´s Dilemma. Boston 1996
• tata.com
• Sümeg A: Tatas Billig-Auto. Deutsche Autobauer dürfen Trend nicht verschlafen, süddeutsche.de Jan.14, 2008
• Nussbaum B: India´s Tata Leads Car Innovation – But Is It The Right Innovation? businessweek.com Jan.8, 2008
• o.V.: Billig-Auto. Deutscher Konzern verdient am Tata kräftig mit. Welt Online Jan.10, 2008
• o.V.: Revolution of vier schmalen Reifen. FAZ Jan.11, 2008
• Delekat T: Der Nano soll Indien mobil machen. Die Welt Jan.11, 2008
• Wihofszki O, Dohms HR, Gorgs C: Bosch bestückt Billigautos, FT Deutschland, Jan.11, 2008
• o.V.: Continental als Zulieferer an indischem „Volksauto“ beteiligt, Berliner Morgenpost Online, Jan.11, 2008

Continue reading »]]> India´s car manufacturer Tata Motors is about to revolutionize the global car market with its disruptive innovation strategy. At the Delhi Motor Show, which will start on January 10, Tata Motors will present its disruptive innovation named „People´s Car (Volkswagen !)“ or „One-Lakh-Car“. As of autumn 2008 this innovation is planned to be produced in India. One Lakh is equivalent to 100.000 IndianRupees. The „People´s Car (Volkswagen)“ therefore corresponds to a  “Two-Thousand-Euro-Car“.

Tata´s disruptive Innovation of the „People´s Car“ will turn the automobile market on its head, and will result in a paradigm shift. As many other disruptive innovations (the term was coined by Clayton Christensen) Tata´s innovation consciously sacrifices some performance in order to be able to radically reduce the costs and the selling price. According to available information, the car, on the one hand, will have four seats and four doors but, on the other hand, it will be only propelled by a 660 ccm rear-mounted diesel engine with 30 horsepower. The maximum speed is said to be 64 kilometers per hour.

The target group of Tata´s disruptive innovation of the “One-Lakh-Car” are not the already existing car drivers. It  is rather the millions of Indian motor bike and motor scooter drivers, to which, however, the drivers of three-wheeled cars can be added, that Tata´s innovation strategy targets. While each year 6.5 million motor bikes and motor scooters are sold in India, up to now only 1.3 million cars are purchased every year. The conversion of motor bike and motor scooter drivers into car drivers therefore represents a huge market potential.

It is estimated that out of India´s present population of more than 1.1 billion people more than 400 thousand qualify for the target group of a low-price innovation strategy and as a potential buyer of a low-price car. The determining factor for the conversion success is the price point. With only one Lakh Tata´s disruptive innovation will cost about double the price of an Indian motor scooter. This should enable Tata to win over a large part of the price sensitive motor bike and motor scooter drivers, who so far could not afford a car, for the “People´s Car”. With its four wheels and the protecting body, this disruptive innovation will open up a totally new world of safety and comfort for the Indians that have driven motor bikes and scooters so far. This is how Tata´s CEO Ratan Tata explains his innovation strategy.

In the first five years Tata Motors plans to sell 2 million „People´s Cars“. Apart from selling the car in India, an export of this innovation to emerging countries such as Thailand and Bangladesh is envisioned.

Tata Motors as a company up to now is the no.2 in the Indian passenger car market (but it is the no.1 in the Indian truck market). Tata´s main rival, market leader Maruti Suzuki, of which 54% is owned by the Japanese Suzuki Motor Company, is casting doubts on Tata´s innovation strategy and about the feasibility of producing an innovative car for one Lakh only that meets the Indian safety and emission standards. This doubt could turn out to be an error with grave consequences.

Tata Motors is giving reassurances that its “People´s Car” will comply with the Indian safety and emission standards that understandably at this moment are not yet as stringent as the German ones. Tata is the only Indian car producer with a certified crash-test facility. In order to reduce the cost of this innovation, the “One-Lak-Car” will use more plastic parts, which are glued together rather than welded, than is usual in the car industry. The first factory for the “One-Lakh-Car” has already been built in Singpur in West Bengal. The innovative car will be assembled in further three satellite plants which will also sell and service the cars, if needed, in order to save the trade margin of the intermediaries.

In its innovation strategy, Tata Motors makes use of a network of European partners such as BASF, which supplies plastic components, or Fiat, which helps Tata with its design. Concerning design:  this in the past was often a weakness of products from emerging countries. In its design, Tata relies on the help of such renowned Italian design firms as I.D.E.A. and Stile Bertone, respectively. Tata has already sufficiently proven in the past that it knows how to design likeable cars.

Picture: Tata Motors´ compact car Indica, originally introduced in India in 1996, the market-leading passenger car

Maruti Suzuki´s doubts may actually be rather tactically motivated. Also at the Delhi Motor Show, Suzuki will present an innovation of its own of a low-cost car with the code name „A-Star“. In Suzuki´s global innovation management plan, India in the future is planned to play the role of an innovation centre for low-cost vehicles.

Renault and Nissan as well intend to make India their innovation centre for low-cost cars. Other industries and companies such as the innovation machine GE or SAP or, respectively, the innovation machine Cisco have already made the experience that India is an interesting location for an innovation centre for disruptive innovations.

And what is the innovation strategy of the German car manufaturers, above all of Volkswagen ? They know that without any arrogance they have to take Tata Motors seriously as a new important global competitor. Because as far as offering a transport solution to the billions of potential low-cost car customers in the emerging and developing countries of this world is concerned, Tata Motors with its Indian innovation centre and its disruptive innovation “One-Lakh-Car” is the first mover and has a leg up. India more and more becomes the leading choice for placing an innovation centre that shall be globally responsible for low-cost cars. It can be safely assumed that the Indian employees who are heavily influenced by daily experiences of scarcity and penury will bring along a big amount of creativity and innovation that will benefit the development of disruptive low-cost cars.

In the meantime, Tata Motors is very active at the other end of the car price scale. It is being viewed as the leading candidate for acquring the Jaguar and Land Rover businesses that Ford wants to divest itself of.

(c) Rolf-Christian Wentz

Sources:

• Wentz RC: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007
• Christensen CM: the Innovator´s Dilemma. Boston 1996
• tata.com
• Maxton G: The World in 2008: Cheap but not so chearful, www.economist.com
• Schneider MC: Billigautos für Millionen, Handelsblatt 20.11.07

]]> http://die-innovationsmaschine.de/EN/?feed=rss2&p=161 0 http://die-innovationsmaschine.de/EN/?p=167 http://die-innovationsmaschine.de/EN/?p=167#comments Fri, 14 Dec 2007 14:36:56 +0000 admin http://2b2b.de/the-innovationmachine/?p=167

Continue reading »]]> How much is it worth to you understanding your customers? One billion US$ ? The innovation machine P&G responds to this question with a resounding “yes”. Since 2001 P&G has been investing more than one billion US$ in a better customer understanding and in improved consumer insights.

Insufficient customer understanding and lacking customer insights continue to be quoted by the companies´ top managers as key barriers on the road to more successful innovations. I often observe that an unexplainable lethargy which tries to avoid the “exposure” to the customers settles in in the course of the innovation process. That is why one of the main tasks of management consists in always requesting new market input from the innovation teams. P&G´s CEO A.G. Lafley has coined a simple and strong message for that: „Consumer is boss“.

The objective ist to get the true opinion of the customers. The closer we get to the customers, the better it is. In doing this, methods of consumer interviewing are increasingly complemented or replaced by methods of consumer observation (also called ethnographic methods). The “tree of truths” indicates the methods of qualitative market research that get us closer to the true opinion of the customers as we progress from the top to the bottom of the tree:

The “Tree of Truths” for the discovery of the customers´ true opinions

(Source: Wentz, RC.: Die Innovationsmaschine. Springer Berlin-Heidelberg 2007)

When Lafley took the helm as P&G´s CEO at the beginning of this decade he and his team came to the conclusion that P&G did not have sufficient competitive advantage in the five areas that are critical to winning in consumer products: consumer understanding, innovation management, brand-building, go-to-market capability, and scale. That is why since 2001 P&G has invested more than a billion US$ in consumer understanding. Today Lafley calls P&G a “powerhouse” in consumer understanding. External benchmarking is said to confirm: P&G has its industry´s strongest suite of proprietary consumer research tools and methodologies.They enable P&G to learn faster and more effectively, and, above all, to discover the unarticulated needs and aspirations of the consumers which lead to breakthrough innovations. What exactly is the secret of P&G´s proprietary market research tools and methods?

In general, the top innovator Procter & Gamble has dramatically expanded its market research arsenal in two directions over the last few years:

• Methods of customer observation (ethnography). Here Procter has significantly refined its instruments, not the least thanks to the support by external consulting firms such as IDEO which has been emphasizing consumer observation as a market research method for a long time („Innovation begins within an eye“). Examples of P&G innovations that were developed through observational methods are Mr. Clean MagicReach and Swiffer CarpetFlick.
• Online research. Already in 2001 P&G conducted 50% of its US consumer surveys online. The main benefits that P&G realizes hereby: 75% faster consumer feedback at half the cost of conventional methods.

Oftentimes P&G combines both methods.

In 2001 P&G acquired a stake in the start-up company Market Tools in order to gain access to Market Tools´ proprietary market research methods. Via Market Tools P&G can listen to the consumers online, can observe them online, and can interact with them online. For this, Market Tools offers its customers an online text analysis, online communities, and online surveys.

Market Tools conducts its text analysis internet-wide. In order to understand what is important for the target group, Market Tools analyzes the contents of 50 million blogs, message boards, and other web sites. Market Tools also offers its customers the service of building and maintaining for them proprietary communities or online communities that companies share with each other. These panels are composed by Market Tools in accordance with target group criteria provided by Market Tools´ customers. P&G can “eavesdrop” on these communities, can communicate with them, and can take polls on selected topics. Market Tools also enables P&G to collect feedback from the consumers on innovative concepts, and to instantaneously improve these concepts accordingly. Finally, Procter can directly query the panel by means of questionnaires for purposes of quantitative market research.

In the meantime P&G has emancipated itself to a considerable extent from the external service providers, and has developed proprietary market research tools of its own.

Tremor is one example of such a proprietary market research instrument for purposes of improved consumer understanding and innovation management. P&G founded Tremor (tremor.com) in 2001 for a dual purpose: as a means of word-of-mouth advertising, and as an innovative market research tool. Through a proprietary process, Tremor recruits so called “connectors” based on eight character traits from amongst the target group of 13 to 19 year old teenagers. “Connectors” are young people with an extensive social network and a propensity for sharing new ideas. Today 250.000 “connectors” belong to the Tremor panel in the USA. These teenagers regularly receive newsletters about innovations and samples to try out new products. Tremor of course hopes that the “connectors” speak out for the innovations in their social networks. P&G observes the behaviour of the “connectors”, deduces relevant consumer insights from it, and draws conclusions for the innovations that it intends to introduce. Furthermore, it collects the rich e-mail feedback which it receives from the youngsters, condenses it into actionable consumer insights, and evaluates them for its innovation management. In the meantime P&G has started to offer the Tremor service also to external customers. Companies such as Kelloggs have already used it successfully.

At the end of 2005 P&G has complemented Tremor by a similar panel called Vocalpoint for mothers with children. Vocalpoint works in a fashion analogous to Tremor. It recruits mothers that possess a strong network and that are very communicative. Today 450.000 “connectors” belong to the Vocalpoint panel in the USA.

Apart from the word-of-mouth tools Tremor and Vocalpoint, P&G maintains various web sites as communication platforms whose discussions it can tap into and from which it can derive important consumer insights for its innovation management. Examples of these web sites are the girls web site beinggirl.com or capessa.com, a website for women which is produced by P&G for Yahoo´s health section. Similar to big focus group discussions, the innovation machine Procter monitors the online discussions and tries to better understand what the consumers in these target groups like or dislike, and what is really important for them in the various stages of their lives.

(c) Rolf-Christian Wentz

Sources:

• Wentz, Rolf-Christian: Die Innovationsmaschine, Springer Berlin-Heidelberg 2007
• BCG: Innovation 2007. Boston Consulting Group Senior Management Survey
• P&G: Designed to Grow. 2007 Annual Report
• markettools.com
• tremor.com
• vocalpoint.com
• beinggirl.com
• health.yahoo.com/capessa
• Vranica S: P&G dives into social networking, Wall Street Journal, 8.1.2007

Continue reading »]]>