Article reviews

“Innovation squared”

On the 9th of December 2004, we already mentioned Jim Collin’s bright article "The ultimate creation", published by the Drucker Foundation in "Leading for innovation", probably the best collection of articles on innovation, with a list of authors which looks like the "who’s who" of management academia ; Clayton M. Christensen, Henry Mintzberg, Rosabeth Moss Kanter, Charles Handy, Arie de Geus… Jim Collins does not have the audience he deserves in France, and we suspect in Europe as well, although his last book, "Good to great" sold at more than 2 millions hardcover copies, and is still #1 on the long-running best-sellers list of Business Week (books which have been on the best-seller list for more than two years…). As Philippe worked last year at Insead on his next book, you can count on us for a few additionnal posts on Collins work !

What is Jim’s point in "The ultimate creation" ?

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In the news

CNAM, a leading French educational institution on Innovation

I thought I should mention a leading institution in France that plays an increasingly prominent role in innovation education: the CNAM. The Conservatoire National des Arts et Metiers was created in…1794! and has since been for many years the leading institution in executive technical education. Generations of people who had left school with no degree have been able to earn their engineering degree later on with CNAM’s evening classes, hence allowing them to go up the corporate ladder. More recently, the CNAM has added management to its course portfolio. The Chair of Innovation and the Center for Creation, innovation and Enterprise (http://www.innovation-cnam.org/ ) offers  classes in the area of innovation management, covering all aspects, from creativity to project management. In particular, "Innovation Tuedays", held every Tuesday and animated by Marc Giget, has become a key event with a specific topic every week. The next session, on February 15th, will feature Jean-Jacques Doyen, Director of Technology and Innovation with Suez Group. In the CNAM’s tradition, conferences are free, but you need to sign-up beforehand.

– CNAM proposes another course called "the best practices in Innovation marketing" presented by Lionel Roure, featuring leading companies (www.cnam.fr/actualites/cycles/innovation.htm ) such as Apple, Baracoda, Valeo, Bic, Siemens, etc.

– Finally, let’s mention an interesting experience called "Experience 2035" (www.experience2035.org ). Experience 2035 is an exhibition travelling across France in a train, that tries to imagine how the world could be in 2035.

If you’re interested in contacting CNAM, get in touch with Lionel (email: roure at cnam.fr).

Case studies

The Failure of AT&T, Victim of a Disruption

So it’s over ; The subsidiary of Bell Telephone Company, child of Graham Bell, the 120 year-old AT&T has been sold to SBC Communications. It’s still a family story, as SBC Communications started in the mid-eighties as the smallest of the seven “baby bells”, the companies created after the regulator ordered the AT&T break-up. But what a story !

AT&T introduced many innovations, and not small ones : first commercial radio (1922), first television transmission (1927), first mobile phone (1946 !), first transistor (1947), first telecom satellite (1962). AT&T has long been a giant of the economic landscape: one million employees at the beginning of the 80s and not so long ago, a market value of $180 billions (1999).

The last numbers were much smaller : 60,000 employees and a market value down to $16 billions. Of course, you can blame it all on the settlement of the antitrust case again AT&T by the Department of Justice in 1982, which was followed by the 1984 break-up ; seven “baby bells” for local telephone services whereas AT&T kept long-distance services.

But the end of the AT&T icon is probably more related to the inability to cope with breakthroughs than pure regulatory matters, and it’s been the place for a quite unusual story : the ODD group.

ODD stood for “Opportunity Discovery Department”, and it was the 1995 brainchild of eight scientists within the famous Bell’s Labs, in Murray Hill, New Jersey. They were acutely aware of breakthroughs which obviously threatened AT&T’s strategic position, and they wanted these issues to trigger a strategic dialogue. To make things worse, AT&T’s strategy at the time was totally focused on incremental marketing targets ; the linear extrapolation of previous years curves (nowadays hopefully, there’s not a single company which operates that way…;-). But ODD scientists became aware that AT&T future would not always look like the past, and they decided to communicate about what they saw, using an ODD vocabulary.

Among the concepts they created, was the “freight train” ; a trend that is going to flatten a company unless it changes its strategy. ODDsters though the concept was especially relevant to the price of long-distance calls ; starting around $100/minute in 1915, it fell to $10 in 1945, $1 in 1970 and 10 cents in 1996. A case study of predictability of economic breakthroughs ! AT&T is gone, but freight trains are still around (talked Peer-to-Peer with a music major lately ?…)

Another striking concept was the “data bomb”. ODDsters favorite example was : “AT&T took 75 years to acquire 50 million customers; AOL took 2,5 years to acquire 50 million chat users”.

Life of ODDsters was not easy. They wanted to save the company, but AT&T didn’t like what they had to say. It became especially obvious when an unscrupulous journalist published an ODDster (David Isenberg) internal memo in Computer Telephony in August 1997. It was called “The rise of the Stupid Network” and it was meant to get the attention of AT&T management on the following mechanism : intelligent networks with stupid peripheral devices (such as telephones) were being replaced by stupid networks with intelligent devices (such as computers). Here’s an extract : “A rudimentary form of the Stupid Network – the Internet – is here today. The telephone companies are beginning to realize this. Fearing erosion of their control and, more importantly, their revenue stream, they have been quick to call for the banning of Internet Telephony, quick to call for the federal imposition of charges on Internet access, and slow to implement widely available, reasonably priced broadband services. To counter the threat of the Stupid Network, the telephone companies are now speeding deployment of the Intelligent Network services, much like sailing merchants responded to the threat of steam by inventing faster sailing ships in the mid 1800s… Instead, telephone companies should cannibalize their own products.”

David Isenberg had to leave AT&T by the end of 1997. On July 1998, the ODD group disappeared. Another perfect example of how easy it is to see breakthroughs, but how difficult it is to get companies to react in an appropriate way.

The detailed ODD story has been written by one of its former members (Amy Muller) and Liisa Välikangas (Strategos). It can be read at: http://www.strategos.com/articles/ODD_StrategyCreation.PDF

Case studies

Why FireFox stands no chance against Explorer

Let’s make a prediction; this is not so common in management, even less in innovation management where 99% of the work is post-mortem analysis, with 20/20 hindsight. There’s been a lot of talk recently, including on this blog, about the FireFox phenomenon; FireFox is the open source Internet browser developed by the Mozilla foundation, recently reborn. It is a direct challenger to Microsoft’s Internet Explorer, which until recently had more than 97% market share.

There is no objective reason to switch from Explorer to FireFox. Of course, you will be told that FireFox is faster, easier to use thanks to a good design, and, last but not least in the times of fear and uncertainty, that it is more secure and less prone to attacks by viruses and other Trojan horses. But these advantage are quite meager. I have been using FireFox for several weeks now, and frankly, I don’t see much difference with Explorer. Only marginally, except of course that several important Web sites do not support FireFox, which is obviously annoying: what is more annoying in fact for a FireFox crusader than having to launch Explorer in parallel regularly in order to visit some Web sites and do real business? Based on this, I venture to predict FireFox’s failure to dislodge Explorer.

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Best of, Book reviews, Theory

Book review: ‘Crossing the Chasm’ or why don’t people buy your revolutionary product

It’s an unfortunate thing that Geoffrey Moore is not so much read these days. Moore has written essential things about marketing new technologies that are as true today as they were ten years ago. In particular, in his book “Crossing the Chasm”, Moore discusses why most companies fail at marketing disruptive technologies. If your job is to market new technologies, it’s a very bad idea not to read the book.

In the book, Moore makes  the following observation: when a company introduces a revolutionary product,
it usually enjoys an initial success with sales with a few key clients, but just when all signs suggest that take off is imminent, sales stall and the product eventually fails on the market. The same story happened, and continues to happen, to countless startups with brilliant products. Why is it so hard to sell revolutionary products?

To answer this question, Moore looks at the well-known technology life cycle. According to the underlying theory, your revolutionary product is first bought by the techno-enthusiasts. These are the guys who buy any new technology, whatever it is, because their passion is to get their hand at unproven technologies. There are
not many of them, they have no budget, and indeed they think they should get the stuff for free, but they prove invaluable in testing the technology and providing feedback. But nobody listens to them, so once you’ve sold the product to the few who are likely to, you’re back to square one. The next in the list
are the strategic (or early) adopters. Those have an entirely different motivation: they buy innovative technologies because they want to gain a competitive advantage. They were the first buyers of SAP, and they bought the first PCs when corporations thought they were just toys.  It is with these guys that you will close the first sales, and start the first pilot projects during which you will improve the product. They are your first source of revenue, your first reference, but their projects are never-ending and you can find yourself completely trapped with a totally specific product if you don’t learn how to say no at one point, unless you want to become a service company.

Again, the strategic adopters are not many, and there lies the problem leading to the growth stall. You will
sign big projects, but never ever think that this is kick-starting growth. There are only so many of them… After a few projects, the source dries up, and you are again back to square one.

The real money lies with the next group: the mainstream buyers. This is an entirely different lot. They
only buy completely mature products that present zero risk for the company. A typical mainstream buyer is the IT manager of an insurance company. He couldn’t care less about innovative technologies and cool stuff. Any new stuff is by definition a headache, and a potential source of problems, not to mention costs.

A common assumption is that you can convince the mainstream buyer with your successes with strategic
buyers. Moore’s luminous insight is that nothing could be further from the truth: between the strategic adopter and the mainstream buyer, there is nothing. No continuity, hence the notion of chasm. After a few successes with lonely strategic buyers, you have to cross the chasm to reach the mainstream buyer. For him, the strategic buyer is not really a valid reference. In fact, the mainstream buyer buys on only one criterion: the reference. He only buys from the leader of the market, because he doesn’t want to take any risk, which
means that as long as there is no leader on the market, as is often the case on emerging markets, he will not buy. He forms his opinion by reading the professional press -as conservative as it can be- , by talking to peers in other companies. If John has chosen Product X and is happy, then I can consider buying X, rather than Y which nobody knows. The result: as long as you are not the leader, you won’t sell anything to the mainstream buyer, which means 95% of the market is out of reach. This is of course a catch-22: because, by definition, as long as you don’t sell to them, you won’t become the leader.

This explains what happens to the usual start-up. When the new product is introduced, it triggers excitement among the techno-enthusiasts. This is the cool stuff of the moment. Blogs and bulletins boards talk about the product. After a big effort, the sales force lands a few big contracts with strategic adopters, usually some R&D managers. First revenues, first references. That’s usually when number crunchers start plotting a straight line of revenue growth, and eagerly send it to anxious investors. Big mistake. Because after selling to the few strategic buyers around, there’s nothing much to sell, and certainly not to the mainstream who are horrified by this new stuff that threatens their existing view of the world.

To move on to the next step, you need to convince them. Usually, they are business unit heads, a very
different population from R&D managers. The kind that ask for you last three annual reports (but we’ve only been around for 9 months!!!), how many people you have in the quality department, and if you’re able to have a dedicated 24/7 support line for their Tokyo office. Of course, you’ve none of this, so the buyer is put off. You’re just to much risk for him. How many real deployments do you have, and I’m not talking pilot projects here? None, Sir, you would be the first! Ah, being the first, the absolute no-go for a mainstream buyer… He’ll just wait until you’re the leader of the market, because then there will be no risk.

So what is the solution? Very simple… in theory: become the leader, and come back to him. How to do that? Simple, and brilliant answer from Moore: reduce your market until it is no more than a micro-niche, because it’s always easier to be a big fish in a small pond than a small fish in a big pond.

Once your market is reduced, which means that you have carefully micro-segmented it and selected the best segment, you can target similar clients, members of the same group. For instance, the retail banks in the northwestern part of the US, or the Rap music fans in New-York. If you target similar clients, a successful sale to one client can be leveraged to sell to the next one, whereas a sale to a bank will be useless as a reference to sell to a car manufacturer. So the golden rule is: focus, focus, focus. The counter-intuitive approach consists, therefore, when the going gets tough after the initial successes, not in running all over the place trying to sell to anybody, but rather to sit down and select just one segment, and put all efforts to conquer it.

The segment will of course be chosen based on what has already been sold, by determining which sale to a
strategic buyer can be leveraged to sell to a mainstream buyer – that can happen. Once this is done, approaching the next mainstream buyer will be a bit easier. With this approach, the micro-segment can be conquered. The strategy consists then in choosing the next segment to conquer the same way, such that
the first segment can be used as a reference. After a few iterations, the micro-segment gradually coalesce into a real segment… of which you are the leader.

In summary, Crossing the Chasm is a very insightful analysis of radical innovation marketing, which
identifies the difficulties, explain the causes and suggest very effective solutions. No wonder the book is a best seller, and a bible of high-tech marketing.

The book on Amazon.

Case studies

Google: an innovator in danger?

Not a week passes without an article celebrating Google’s success, the poster child of the post-bubble Internet economy, the one that has survived. In a previous post, we were discussing how Googles poses a threat to mighty Microsoft with its new generation mail and search engine. In fact, Google is now much more than a superbe search engine and a very smart mail service. Google, in fact, is now a "Web system", ie a set of services designed to work together and leverage each other.

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Article reviews

Innovation diffusion

In the December issue of Technology Review (MIT’s magazine of innovation) was the last column of Michael Schrage. Michael is co-director of the MIT Media Lab‘s E-Markets Initiative and a senior adviser to MIT¹s Security Studies Program.

As he puts it, he started the monthly Technology Review column to "explore the real guts and viscera of the innovation process – not the polite entrepreneurial fictions about how brilliant ideas ultimatly charm the reluctant marketplaces". After three years, Michael’s conclusion is simple, but bright : "innovation isn’t what innovators do ; it’s what customers and clients adopt".

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In the news

Open source = communism = innovation obstacle ?

Here we are: Bill Gates blew a fuse. In an interview with CNET, Bill was asked about intellectual property rights, of course in the light of recent developments in open source and music piracy. And here is what Bill said:

(…)There are fewer communists in the world today than there were. There are some new modern-day sort of communists who want to get rid of the incentive for musicians and moviemakers and software makers under various guises. They don’t think that those incentives should exist.

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