Innovation Excellence Weekly - Issue 1
Our inaugural issue of Innovation Excellence Weekly for Issuu. Inside you'll find ten of the best innovation-related articles from the past week on Innovation Excellence - the world's most popular innovation web site and home to nearly 5,000 innovation-related articles.
October 5, 2012 Issue 1 – October 5, 2012 1. Beyond the Issacson Bio – Steve Jobs’ Future Insights …………………… Julie Anixter 2. Making it All Click …………………………………………………………….. Frans Johansson 3. Innovation Catalytic Converters …………………………………………….…. Paul Hobcraft 4. Top 10 Reasons Products Fail at Jobs-to-be-Done ……………..…………… Tony Ulwick 5. An Innovative Look at Your Customers – Fire Some …………………..……. Jim McHugh 6. The Big Myth of Innovation …………..…………………………………………. Braden Kelley 7. Co-Creation and the New Web of Things …………………..……………………. Greg Satell 8. Real Reason Companies Must Innovate …………………………………….. Rowan Gibson 9. Me, Me, Me ………………………………………..……………………………….. Dean DeBiase 10. Kraft “Blank Check” Unleashes Potential and Profits ……... S. Khosla and M. Sawhney Cover Image credit: Work Anywhere from Bigstock Your hosts, Braden Kelley, Julie Anixter and Rowan Gibson, are innovation writers, speakers and strategic advisors to many of the world’s leading companies. “Our mission is to help you achieve innovation excellence inside your own organization by making innovation resources, answers, and best practices accessible for the greater good.” Beyond the Issacson Bio – Steve Jobs’ Future Insights Posted on October 5, 2012 by Julie Anixter Steve Jobs’ untimely death left a lot of people wanting more. Even after consuming Walter Issacson’s masterful bio, welded out of unfettered access and proximity to the man himself, a lot of people in the innovation community were left hungry for a different kind of explanation of his life and work. One that could be used as a 1-2 punch to learn from. Patrick Meyer is one of those people who, like many long time Jobs’ observer/appreciators, wanted to go deeper into the meaning of Steve Jobs’ work, to make sense out of it for the sake of work itself. He could have looked at any one of the disciplines Job’s mastered — computing or music or education or animation or value-creating entrepreneurship of epic proportions. Instead he chose to go deep down into the well of mobile. What resulted is Steve Jobs & the World of Mobile, which Meyers created to show Job’s vision and inspiration in context, and to unleash insights for the future of an increasingly technology-enabled world. This new book lands dead square in the middle of a growing trend, noted succinctly by Jenn Webb on O’Reilly media, reporting on some Latitude Research that says it clearly: Audiences want to be part of the story. She goes on to cite Martin Bryant at The Next Web commenting on the first phase of research company Latitude’s new project The Future of Storytelling. The group interviewed 158 pioneers in the media space to find out just how audiences want to experience stories in the future. Bryant reports that respondents’ “key demands are summarized in Latitude’s report as ‘The 4 I’s’: Immersion, Interactivity, Integration and Impact.” Steve Jobs & the World of Mobile NFC-Empowered Book gets very close to this model in the way it delivers “insights for the future” and logics them out, byte by byte. By exploring how Jobs’ specifically innovated in the mobile space, the whole constellation of the iPhone, the iPad, iTunes and i-Life, Meyers wants to answer the question: what is the DNA of an innovator? Here are four ways that Meyers attempts to deliver a book that enables other students of Jobs’ ‘Innovator DNA’ to take action. Immersion and Interactivity Meyers’ wants to immerse you in his insights about Jobs’ insights. In both the hardcover and for the iPad/Kindle, the book/e-book comes to life with pop-up points that you touch or “snack on” (NFC) or snap (QR code) that bring up videos and content from Steve Jobs, his Stanford commencement speech, the “Different Ones” memorial video narrated by him, plus an array of future focused innovations, mobile app showcased examples and beyond. Meyers’ ongoing passion for marketing and tech get fused together… The book’s experiential content models its message, serving as a learn by doing platform. This experience is delivered using Near Field Communication or NFC (on Thinaire). Thinaire, where Meyer serves as CMO, is the first ever NFC Enterprise Marketing Suite, that does not require an app and simply involves smartphone touch on the corner of the book (every major brand has NFC phones rolling out except Apple which is expected to come with a related technology soon). Smartrac is the manufacturer of the book’s NFC/RFID technology. All these opportunities to tap and snap into other experiential zones and content. Integration To mark the first anniversary of Steve Jobs’ death, Patrick Meyers is launching the kind of all out integrated communications campaign he was famous for during this tenure as Director of Marketing for The Coca-Cola Co. The book is a 2-in-1 bonus book:“Apps: The Inside Scoop”) is an iBook on iTunes, a hardcover and a Kindle at Amazon.com, as an e-book at Barnes & Noble and for KOBO. Patrick Meyer will be doing a media, university and Fortune 500 tour and keynote speaking around Steve Jobs and using his still emerging insights for the future. Impact Finally, the book is an unabashed giveback to young people. All profits from the book will be donated to help college students follow in Steve Jobs footsteps. Meyer also helped found the Villanova Innovation, Creativity & Entrepreneurship Center and The Meyer I.C.E. Award, an annual award given both in an honorary and financial way to help emerging college graduates to follow in the Apple visionary’s footsteps. Most recently a memorial ICE award was given to Steve Jobs to celebrate his lifetime of creative and innovative excellence, and Meyer has set up www.itystevejobs.com as a public thank you site. Meyers says: “The book is a thank you to Steve Jobs and a give back to the world. It is dedicated to helping nurture creativity and innovation, which should be part of every college student’s thought process if they want to succeed in today’s 3.0 world.” The world misses Steve Jobs and the creativity and passion he represents. Maybe Patrick’s book will help us miss him a little less, and more importantly, learn from his brilliance to innovate in the seemingly infinite mobile lane in our own lives. image credit: Trey Ratcliff, stuckincustoms.com © Don’t miss a post (4,700+) – Subscribe to our RSS feed and join our Innovation Excellence group! Julie Anixter is Chief Innovation Officer at Maga Design and the executive editor and co-founder of Innovation Excellence. The co-author of three books, she’s working on a fourth on courage and innovation. She worked with Tom Peters for five years on bringing big ideas to big audiences. Now she works with the US Military, Healthcare, Manufacturing and other high test innovation cultures that make a difference. Making it All Click Posted on October 4, 2012 by Innovation Excellence Interview – Frans Johansson – Author of The Click Moment I had the opportunity to interview Frans Johansson, the author of the new book, The Click Moment: Seizing Opportunity in an Unpredictable World and the popular book The Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation. He is also the founder and CEO of The Medici Group. I first met Frans at a Business Innovation Factory event in Providence, RI several years ago and wanted to explore with him just what the significance of the ‘Click Moment’ is and how it relates to innovation. Here is the text from the interview: 1. How would you describe ‘The Click Moment’ to people unfamiliar with the term? Most events, insights, meetings and impressions in our life reinforce what we already know or what we are already doing—or they barely register at all. But there are also a few moments that make us see something new, choose a different path or make a decision that changes everything. I call those moments “click moments” and they tend to be completely unexpected, serendipitous and random. The fact is, success is far more random and serendipitous than we’d like to believe. My book, The Click Moment, examines great click moments that turned the tide, be it for a company or one’s career. I also offer a blueprint for how to create click moments and harness serendipity to your advantage. 2. What are some of the greatest challenges companies can face when pursuing an emergent strategy for a product or as a company? The greatest challenge is that you can’t predict which idea, initiative or strategy will work. Yet, business rules dictate that we plan and analyze the numbers to formulate THE strategy for how “our company” can dominate “X” market. That’s the quickest way to fail big (for example, Solyndra) or to have the rug pulled out from under you (ask Nokia). Instead, reality is far too complex and the rules of the game constantly keep changing—making it impossible to use the lessons of our past to predict the future. For instance, intelligence agencies spent billions in software to predict change in the Middle East; yet they never foresaw the sweeping changes called Arab Spring that got its start from a face-slap in Tunisian market. The second biggest challenge is to understand the implications of this lack of foresight. For instance, companies will sometimes say that they understand that it is hard to predict success and start down a road of “emerging strategy”. But few other actions support such a desire. For instance—they avoid searching for answers in unlikely places, see surprising results as something to avoid or at least explain away. W hen these companies have to select which initiatives to work with they simply can’t help themselves in trying to figure out the answer before hand. They want to run a return on investment (ROI) analysis on each idea to see which is the best, for instance. This is, of course, folly since any such calculation ignores complex interactions and the fact that the world keeps changing in unpredictable ways. The founders of Google tried to sell their company 9 months after it had started to Yahoo for $1 million. Neither the founders nor Yahoo had any clue what the true ROI was of this little company. Overcoming the urge to remove all unknowns from a project is overwhelming and this urge is responsible for an enormous amount of wasted opportunities. So if strategy, planning or analysis is not as helpful as we have come to believe in creating success – how do you increase your chances to succeed? Well, if predictability is the enemy of success, make unpredictability your friend. We have to invite serendipity and randomness into our actions. One can, for instance, place lots of small purposeful bets, see what resonates or evolves, and then double down on those that take off. But it doesn’t stop there, you have to be constantly alert to random and complex forces, and be ready to act and shift direction, if needed. 3. What is one thing people can do to better recognize serendipitous events? It’s not so much about recognizing serendipity as ‘attracting,’ if you will. That’s hard because we as people are creatures of habit. In order to attract, engender, and invite serendipity, we must break out of these habits, place ourselves in new situations—invite people that don’t make immediately “logical sense” to our meetings, take our eyes off the ball—even if briefly, spend time pursuing leads where the return is not obvious. That said—click moments are often characterized by being surprising and eliciting some sort of emotional response. Surprise indicates that you did not plan for what just happened—which means you may have just stumbled upon something unusual, something that will set you apart form your competitor. Howard Schultz stumbled into a café in Milan, tasted a cafe latte for the first time in his life, and changed the course of Starbucks forever. 4. How can people capture the randomness of the world and focus it in their favor? In my book I talk about 3 separate approaches. First you have to create more click moments within your life or your organization. One way to do this is to actively create new unexpected intersections. Bring together people from outside your company, or between siloed departments or between different countries or cultures. These interactions will help you find serendipitous insights and opportunities—those that others might not have logically figured out. Second you have to take a chance on some of these click moments by placing as many purposeful bets you can afford while not being completely distracted. This means you are taking statistical advantage of the randomness that rules our world. Angry Birds was Rovio’s 52nd game. You have probably not heard of their 51 earlier ones. If you tried 52 times at anything you would probably have a decent chance at finding something that helped you stand apart, too! Finally you have to harness the complex forces these types of bets precipitate. The ultimate point of these types of bets might not be whether or not they worked out—but instead what other spill-on effects they have created. If you are fortunate they may have created a virtual circle where network effects make your initial win increasingly powerful, such as the case for eBay or Facebook. 5. What is the most important culture change for organizations to make in order to support innovation? In my keynotes, I often ask the audience, “Where does innovation happen in your organization?” Not surprisingly, the most common answers are “products,” “engineering,” “leadership,” “strategy,” and of course, “innovation group”. But once in a while, someone shouts out, “all of us”. That’s what I was looking for. Enabling everyone to take ownership of—and be allowed to contribute to—the innovation process is, to me, the single most important culture change an organization can make. 6. What are some of the biggest barriers to innovation that you’ve seen in organizations? Jumping off the point I just made, many organizations feel compelled to compartmentalize innovation to only certain people, teams, or groups. In this kind of environment, not only are diverse perspectives not being shared, but also doing so is implicitly discouraged. Yet, the most groundbreaking innovations happen at the intersection of ideas, cultures, perspectives, disciplines, etc. I explore this concept in my first book, The Medici Effect. Another huge barrier to innovation is the reward structure. Most organizations do not value or reward failure, so employees do not take risks. When you don’t take risks and instead do the logical thing, you essentially do what everyone else is doing—and will not stand out. Creating a culture that rewards failure—when in the pursuit of excellence—can change how people think about risk. Now, I’m not saying that organizations should take big risks either. Rather, they need to rebalance risk, and this ties into the third significant barrier that I often see—the lack of execution. Put another way, the big innovations we see appear to be homeruns. But the real story behind these big successes is often one fraught with failures, many small bets, where there was no real way to know whether an idea was going to work or not—until you tried to make it happen, that is. You don’t have to swing for the homerun. Instead, identify what I call the “smallest executable step”. Its outcome will determine your next move, and in this way, you relentlessly execute and push your ideas forward. Lastly, many organizations rely on a controlled process that doesn’t allow for the reality of how things actually work. At my own company, we talk a lot about this, what I call the “innovative heartbeat”. There’s an expansion period when we question everything—our processes, how we do something, our products—and then a contraction period where we nail down what we just turned inside out. In the real world, passion counts and randomness reigns. Organizations must allow for and take advantage of these forces. 7. What skills do you believe that managers need to acquire to succeed in an innovation-led organization? Tomorrow’s innovative leader is what I call an “intersectional thinker”. The lines between different cultures, industries and fields are blurring— and these people try to find ways to actively take advantage of this fact. An intersectional thinker searches for ideas at the intersection of these different areas in order to create unexpected, serendipitous click moments. These leaders are resourceful, meaning they consider existing resources in how they approach innovation, and they can make things happen with minimal financial investment. They do it this way because they are aware of how unpredictable the world is, that in such a world you are better off inviting randomness—and then doubling down on the ideas that take off. Success is rarely about how much money is invested. Take, for example, the Apple Newton and the Palm Pilot. Apple put in $500M into the Newton while Palm put in $3M. The former went nowhere and the latter went on to be the dominant handheld device in the era before the iPhone. They are also wary of detailed data-driven analysis as a main source of predicting future success. Not because big data is not important—but because this type of analysis is available to everyone, so they don’t see it as a competitive advantage. Instead they look to use serendipity to stand apart—the type of insights no one else could have logically arrived at. Oh, and they are comfortable doing so. They also understand that passion is a word that connotes a deep intensity and willingness to try things out, without a guarantee that they will work. And so they look for passion within themselves, but also among the people they are supposed to lead. 8. If you were to change one thing about our educational system to better prepare students to contribute in the innovation workforce of tomorrow, what would it be? The education system here in the US, and in other countries for that matter, has been entirely constructed according to the idea that learning can be planned, step-by-step, through each grade all the way until college and beyond. This idea leaves deep roots as we continue to think about advancement in predictable, logical moves up, up ever upwards some sort of ladder. But one remarkable insight I came across, while writing my new book, was that virtually no one’s career ultimately plays out this way. Instead the big breakthroughs happen serendipitously: it’s a meeting that leads to a new job, one surprising client that gets your start-up off the ground, an unexpected outcome of an action you took. Our educational system should prepare us for this fact. In addition, I grew up in Sweden, so when I came to college in the U.S., I was amazed by the diversity of students. I remember thinking that in this student population, with many interesting connections, backgrounds, and young and evolving perspectives, great phenomenal ideas could be seeded and grown. But I also realized that this wasn’t a message that was explicitly made at the school. What if it had been? I believe it holds true for education at any level. The educational system is supposed to prepare students for the future. By the time they graduate and enter the workforce, they will be working together with people who are different from them; these people come from different industries, cultures and backgrounds. It will be critical for them to be skilled and able to unleash the diversity of the teams in which they work. I believe the time to really make that point is early in a student’s career. Don’t miss an article (4,750+) – Subscribe to our RSS feed and join our Innovation Excellence group! Braden Kelley is a popular innovation speaker, embeds innovation across the organization with innovation training, and builds B2B pull marketing strategies that drive increased revenue, visibility and inbound sales leads. He is currently advising an early-stage fashion startup making jewelry for your hair and is the author of Stoking Your Innovation Bonfire from John Wiley & Sons. He tweets from @innovate. Innovation Catalytic Converters Posted on October 5, 2012 by Paul Hobcraft Sometimes it is very pleasing that “what goes around, comes around”. Recently I was reading a piece by Scott Anthony, talking about the new era of innovation under his article appearing in the HBR The New Corporate Garage, and I had one of those ‘coming around moments’ and went on a hunt through my old files. Then Deanna Lawrence prompted this even further in a twitter note to me and a few others, mentioning a www.you tube.com discussion on catalysts and infusions which just added more of the ‘coming around’ that I’m sensing or reading about. Take a look at this video. In it, Hans-Peter Neumann of BASF (the Chemical Company) and Marcel Vigneron, a celebrity chef, talk through and describe the unique similarities of innovative catalysis and molecular gastronomy they share in how they approach innovation. I love it when you can share a common language and set of beliefs and gain validation in what you do. So why does this get my interest? Well firstly I think there is some movement to a new phase of innovation, maybe to Scott’s forth-era innovation, as he is suggesting in his words: “For catalysts to flourish, companies need to embrace open innovation, approach innovation systematically, simplify and decentralize decision-making mechanisms, and be learning-focused and failure-tolerant. Beyond that, they need to make the pursuit of transformative innovation a purpose-driven activity.” I think we are working at both the edges of discovery as we are equally at our core, in innovation and we do need to pursue both in parallel. We need to identify, explore and become more immersed in bigger picture innovation as well as extract from what we have already available, to extend in new, better ways. To catalyse needs considerable experimentation ,trial and error and a real passion and energy to find that ‘reaction’ point. Often it is the ‘raw’ energy and commitment of individuals that provide that catalytic effect. We do need to accelerate reactions We need to accelerate reactions in people, in processes, in discoveries, in research, in our thinking. We must advance upon our current state as we do seem to be stuck at this moment in an awful lot of ‘intractable’ problems in the world and not delivering the new innovating horsepower that will take us out of some tough economic times. So innovation reactions need catalysts. Seems fair enough. Back in 2003 I worked on a concept around catalysts, more for the sister company that was more the dominating force in my life back then, when I was based in Singapore for HOCA Consulting. It got ‘aired’ but received little traction, perhaps it was not its time or it lacked its solution purpose .Perhaps it needs to get more tied into Scott’s suggested purpose-driven activity. It would make sense and gives a concept a clearer context. Let me offer it here, as it was presented in 2003. Speeding up your reaction time in a catalytic ways I started with my definition at that time “Catalysts act as innovation reactors that are connecting across economic webs, combining “raw” capability with innovation thought, to achieve unique value creation quickly, so as to compete in different ways in increasingly disruptive markets” Looking afresh at this definition it seems to have weathered the age of time. Below is my visual for that concept which seems a little busy and maybe a ‘catch all’ approach but it does provide the different aspects what need to be brought together so we can get a greater catalytic effect. My view of a catalytic effect, like a reactor So if we can encourage reactions, cause new activities, prompt more transformation and unleash a whole new wave of energy, then I’m going to be happy to get involved in the next generation of innovation activity. I need to crank up my reactor concept first, though it does need some dusting down and refitting, with its mark IV innovation catalytic converter. As Scott Anthony poses “are you ready” for the next generation of innovation? image credit: hocaconsulting.com Donâ€™t miss an article (4,700+) â€“ Subscribe to our RSS feed or join us on LinkedIn or Facebook. Paul Hobcraft runs Agility Innovation, an advisory business that stimulates sound innovation practice, researches topics that relate to innovation for the future, as well as aligning innovation to organizations core capabilities. Top 10 Reasons Products Fail at Jobs-to-be-Done Posted on October 3, 2012 by Tony Ulwick We know that people buy products and services to get a “job” done. When looking at innovation through a jobs-to-be-done lens, it is clear that the goal of innovation is to create products and services that help customers get their jobs done better. So why do nearly 90 percent of all products that companies invest in fail to achieve this objective? As the pioneers of jobs-to-be-done thinking, we have learned that much of this failure can be explained by looking at the problem from a different perspective. As we worked with over a third of the Fortune 100 companies over the past two decades, we analyzed the innovation problem through a jobs-to-be-done lens. Through this lens, we have concluded that these are the top ten reasons products fail: 1. The chosen market doesn’t hold significant revenue potential. It is impossible to have a billion-dollar idea in a million-dollar market. Targeting a market that has few job executors, or customers that don’t struggle to get the job done, may never result in revenue growth. 2. The market is defined too broadly. Focusing on helping customers get loosely defined, lofty, or emotional jobs done makes innovation more challenging and success less likely. 3. The market is defined too narrowly. Focusing on helping customers get one or two steps of a job done, when the actual job is much larger and complex, will likely lead to underwhelmed customers. 4. A product improvement strategy is followed when what is needed is a new product. When the only unmet needs in the market cannot be addressed by adding new features to the existing product, a new product is needed to get the job done better. Improving the existing product is a waste of time. 5. The product doesn’t get the job done any better. The product may address the same needs as competing solutions, but fail to address additional unmet needs and add additional value. 6. The product isn’t targeted at the most underserved segment. Every market has a segment of customers that struggle more than others to get the job done. Not knowing who these early adopters are makes success less likely. 7. The product doesn’t address all consumption chain jobs. Products won’t succeed if customers find it difficult to acquire, set up, use, maintain, or upgrade them. The product is less attractive if it fails to address all the consumption chain jobs. 8. The product doesn’t address the entire job. It may help customers get parts of the job done well, but not the whole job, leaving customers to cobble together the rest of the solution. 9. The product gets the job done better, but not enough to matter. People may not buy or switch to a product that gets the job done 1 or 2 percent better. Significant improvement (20 percent or more) is usually required to gain a market leadership position. 10. The product isn’t priced to win profit share. A great product may be underpriced if it is unclear just how much value the product is delivering customers. This leaves revenue and profit on the table. Products fail along these fronts because the innovation processes that companies use to create them do not mitigate these risks. This is why our Outcome-Driven Innovation process is different and works. It was built from the ground up to mitigate these and other risks. Doing so has given us a success rate that is five times the industry average. Seeing innovation through a jobs-to-be-done lens offers insight that explains why products succeed and fail. Don’t miss an article (4,750+) – Subscribe to our RSS feed and join our Innovation Excellence group! Tony Ulwick is the pioneer of jobs-to-be-done thinking and the inventor of Outcome-Driven Innovation. He is the author of the best-selling book What Customers Want and has published articles in the Harvard Business Review. He holds 5 patents on his innovation process. As the founder of Strategyn, he has generated billions of dollars in revenue growth for dozens of global firms. An Innovative Look at Your Customers – Fire Some Posted on October 3, 2012 by Jim McHugh “You want me to fire some customers and give up hard-earned revenue! What kind of advice is that?” That’s what Steve, the CEO of one of my stuck client companies said to me when I urged them to get rid of some long-time customers. Less can be more. Don’t be Stuck in a Rut. A company should ‘fire’ individual customers, groups of customers or entire product lines when the customers: 1. have become marginally profitable or are in negative profit territory 2. cause support costs to spike 3. inflict a never ending sales cycle on your people 4. unleash unreasonable demands (pricing, process, delivery) on the business 5. have become entrenched in a dying segment of the industry Why not fire them and give these ‘bad’ customers to your competitors? Each one of these 5 conditions is a story by itself, so I’m creating a ‘Fire Some Customers’ series of blog posts. This is Part I and it asks the most basic question about firing a customer, which is: Why has a customer or group of customers become marginally profitable or moved into negative profit territory? Four basic areas impact customer profitability. The thought process to analyze each of them is somewhat of a meandering drift through the river called your P&L. Cause #1. Lower prices You have been forced to lower prices (or keep them the same after cost increases – more on that below). Your decision to drop or hold pricing is typically caused by competitive pressure or structural changes to your industry. Competitive pressure: Your competitive pricing decisions can either be: 1) thoughful, tactical decisions or 2) decisions based on panic (i.e. you failed the Stuck in the Traffic Needle Test) or 3) shooting from the hip. Are your pricing changes temporary or permanent? Structural changes to your industry: Have your products evolved from a specialty to a commodity? Is your product now an ‘also-ran’? Are you subject to competitive product substitution? Maybe you are now Stuck in Another World. If there are significant structural changes, most likely they are permanent. Cause #2: Product cost increases Your product cost structure has been negatively impacted by rising material, labor or overhead costs, some of which may not be under your control and some may have been caused by your business practices. See above regarding pricing decisions: Are these cost increases temporary or permanent? Cause #3. Both falling prices and rising costs. What if you are experiencing: strong, competitive pressure major structural industry changes escalating product costs out of your control Obviously, this is a tough spot and this mix generally causes gross margins to be in a steady, unsustainable decline. Typically, the combination of all these factors has a negative impact on the entire business, not just on one customer or a group of customers. Selective pruning of customers may not be possible, particularly in a process manufacturing operation that depends on minimum volume levels of production. This collection is most likely a permanent condition. Cause #4: You don’t know why customer profitability has declined Or worse, you don’t realize it is happening until it’s too late to change. This is not as uncommon as you might think and generally due to a ‘Just close the sale!’ approach combined with weak cost systems. In one ‘job shop’ company I worked with, once we matched the actual job costs with the job price quotes, the results were startling to the CEO. Some customers were fired, and the salespeople were retrained on how to quote. Conclusion Should you fire customers based only on the decline in their profitability? If you go through an analysis similar to the above and come to the conclusion that the changes are temporary and you are making good tactical decisions about pricing, then don’t throw them out. If you think the changes are permanent and the customers no longer belong to a protected class, say goodbye. However, as I said at the beginning of this post, the decision to fire customers may be influenced by a number of other factors (unreasonable demands, support costs, etc.). There can also be an emotional aspect to the decision to terminate the business relationship with one of your customers; they could be one of your Sacred Cows. Have you experienced any of these issues? Have you fired any customers and if so, why? image credit: dianawest.net Donâ€™t miss an article (4,700+) â€“ Subscribe to our RSS feed and join our Innovation Excellence group! Jim McHugh has extensive experience working with emerging growth and middle market companies as an executive coach, strategic/ performance improvement consultant and director. Creator of the 9Stucks business diagnostic tool. The Big Myth of Innovation Posted on October 1, 2012 by Braden Kelley For my last article for the American Express OPEN Forum I thought I would go out with a bang and attack a controversial topic, something that people are starting to believe as an empirical truth. Something that I don’t believe has to be true. It seems like most people are starting to believe that it is inevitable that formal innovation efforts begin with high energy and wane over time. And that this is true even if you’ve built robust innovation processes and have strong support for innovation at all levels of an organization. I must say that what many people are portraying as inevitability is a myth, and falls prey to the age old quote: “There are lies, damn lies, and statistics.” The reason why we have this myth is that people misinterpret a key artifact of most formal innovation processes as a representation of reality. The artifact in question is that typically when organizations begin a formal innovation effort and start soliciting ideas from their employees or even their suppliers, partners or customers, they get a huge spike in the numbers of ideas at the beginning and then the volume of submitted ideas tapers off over time. The reality is that when you begin a formal innovation effort and begin soliciting ideas, there is a backlog of ideas just waiting for an outlet to input them into. A few weeks ago I wrote an article called What’s in Your Innovation Black Book? that describes the mechanics of this artifact in detail. In countering this myth I would like to offer an alternative suggestion – a potentially controversial one. Innovation efforts do not naturally start with high energy and wane over time as if ideas equals energy. In fact, organizations with robust innovation efforts and really great communications and follow-through around their efforts will experience quite the opposite. People are naturally skeptical, and while the backlog of ideas may trick you into believing that innovation energy begins high and naturally falls, in fact innovation energy begins low (but noisy) and – with proven follow-through and consistent commitment – organizations can actually RAISE the innovation energy in their organization over time. Walking the walk and earning people’s trust is how you make continuous innovation possible and it makes obtaining innovation excellence a worthy and achievable goal. Also, when you talk about the innovation energy in an organization, idea generation is only part of the story, and often the only part that people measure. The truth is that there are huge, important opportunities for people to get involved with evolving ideas and making them stronger before they reach the idea-evaluation stage. When you look deeper into organizations successfully pursuing innovation excellence, you’ll find the energy that gets applied towards the evolution of ideas actually increases over time in organizations with well-organized, well-communicated and well-executed innovation programs. This is because as people begin to believe that their organization’s innovation efforts are not just a gimmick, the formal innovation program begins to unlock the energy of people who aren’t necessarily great at coming up with ideas, but who do have a lot to offer when it comes to evolving and developing them. When it comes to innovation, don’t get distracted by the easy-to-measure idea generation part of the process. If you truly want to become excellent at innovation, focus your efforts on not only unlocking the key customer insights that help generate ideas, but also on building a believable story for your employees, partners, suppliers, etc. about how you are seriously pursuing innovation excellence in your organization as your new way of doing business. Then focus on how you communicate not only your commitment to becoming excellent at innovation as an organization, but also on how you are following through on all of your talk. If you do this well, then you will face not a decreasing amount of energy for innovation over time, but instead an energy level that is sustainable, enjoyable and powerful. So, instead of focusing on idea generation, focus on energy generation, and you will be one step closer to achieving innovation excellence in your organization. This post may also be viewed on the American Express OPEN Forum Idea Hub. Don’t miss an article (4,700+) – Subscribe to our RSS feed and join our Innovation Excellence group! Braden Kelley is a popular innovation speaker, embeds innovation across the organization with innovation training, and builds B2B pull marketing strategies that drive increased revenue, visibility and inbound sales leads. He is currently advising an early-stage fashion startup making jewelry for your hair and is the author of Stoking Your Innovation Bonfire from John Wiley & Sons. He tweets from @innovate. Co-Creation and the New Web of Things Posted on October 3, 2012 by Greg Satell “Build a better mousetrap and the world will beat a path to your door.” That notion inspired generations of tinkerers, innovators and entrepreneurs. Of course, then some whip-smart MBA got hold of it and it became “build a proprietary supply chain and a captive distribution channel and you can earn superior returns on your cost of capital.” Scale, rather than inspiration, became the path to competitive advantage. As digital technology pervades the physical world, the principles of scale are changing in a profound way. Ordinary people armed with smartphones are becoming hackers, co-creating their experiences with marketers. Products themselves are becoming services. Supply chains are giving way to demand chains. Marketing has changed forever. The Internet and The Web I wrote about the difference between the Web and the Internet a while back, but here’s the short version: The Internet is essentially hardware – a patchwork of fiber, frequencies and protocols that link together the world’s computers. The Web, on the other hand, is software that lays on top of the Internet and presents information on a unified standard. In other words, the Internet delivers connectivity and the Web provides universality. The Internet gave us “walled gardens” like AOL and the Web broke the walls down. The Internet, originally an obscure platform for scientists to share information, tends to be closed. The Web is an open platform. The short history of digital technology has been an ongoing interplay between these two architectures. Technology usually appears on the scene proprietary and closed, then after some time becomes open and universal. Up till now, these distinctions have been somewhat academic, because they applied mostly to data and media. The phase we’re entering now promises to be much more exciting Digital Invades the the Physical World As computer chips became smaller, cheaper and less power hungry, it became possible to incorporate them into just about anything. In 1999, a young assistant brand manager at Procter and Gamble named Kevin Ashton realized that by implanting RFID chips into products they could revolutionize the supply chain. The Internet of Things was born. Ashton’s insight, which he laid out in this article, was that having humans input data is incredibly clumsy and inefficient. It’s much better to get information from objects themselves. With cheap sensors, they know where they are, what happens to them, how much energy they use and they can tell us about it. This video from IBM’s smarter planet initiative shows how technology is giving the earth a “central nervous system.” However, in a very real sense, the Internet of Things falls short, much like the Internet itself fell short. While it works well for proprietary systems, it needs an open environment to become ubiquitous. For it to have maximum impact, consumers need to be able to use it in an easy and seamless way. That’s the essence of the Web of Things. The Four Pillars of the Web of Things Over the years, I have noticed a fundamental dissonance between visions of the future and the reality that unfolds. We are presented visions of conformists walking orderly, antiseptic halls in silver spandex and end up with piercings, tattoos and Foosball at the office. As technology advances, people seek more control over it to express their individuality. That’s exactly what’s happening now. While the virtual Web made documents universal, the Web of Things is making machines interoperable and allowing consumers to tap into the Internet of Things. The technology centers on four pillars: Smartphones: At the center of the Web of Things is our smartphones. We carry around more processing power than the Apollo program employed to put a man on the moon and we are increasingly using it as a universal remote control for our environment. The phone itself is a sensor platform. Apps like Shazam and Viggle are able to recognize the media you are watching or listening to and serve related content to your smartphone or tablet. Cameras are able to recognize faces and objects and then search for related information while GPS notes our location and that of objects around us. Most of all, we are using our smartphones to interact with other elements of the Web of Things, like Smart Homes, Smart Cars and Smart Retail, Smart Homes: New super-efficient chips are putting connectivity everywhere and our home appliances will be as much a part of the Web of Things as our tablets or smartphones. This isn’t a new idea, we’ve been hearing about “refrigerators that order your milk” for years now. However, what’s emerging is profoundly different. At CES 2012, Motorola showed of their 4Home system, which can sync any device with your smartphone. You can monitor your home through video feeds, control your home security, manage your energy output and preheat the oven from the car. Again, the vision was of technology running everything itself, the reality will be more control for consumers. The smart home concept is still in its infancy, but with a little imagination we can see the possibility for a multitude of Web of Things mashups for the home. Food packaging that interacts with ovens to set time and temperature, clothing that interacts with washing machines to alert us when we’re about to ruin that new silk blouse and so on. Smart Cars: Our cars are becoming an integral part of the new Web of Things as well. Ford recently held a developers challenge for its Sync platform and Toyota just showed off their Insect concept car that will be completely integrated with smartphones. In Japan, McDonald’s is experimenting with a system that will allow for downloading menus and in-car ordering. Ford is also reaching out to medical device makers to collaborate on apps that help diabetics monitor glucose levels (a serious problem behind the wheel) and monitor allergens in the air for asthmatics. Smart Retail: I’ve written before about the future of retail and it’s clear that the Web of Things is already transforming the shopping experience. Major retailers like Wal-Mart and Target already have apps to help consumers navigate the store. Nieman Marcus just released one that alerts salespeople when a regular customer enters the store and gives them an account history. My Best Fit does full body scans to suggest the optimal size in various brands. Kraft is experimenting with technology that can suggest what you might want to buy for dinner based on information gleaned from a facial scan. Disney has a mirror that lets kids try on virtual outfits. Another hotbed of innovation is payments. Starbucks, for example, recently inked a deal with Square to implement mobile payments in its stores. Cash registers will soon be the exception rather than the rule. Wherever you look, the Web of Things is turning everyday experiences into a mash-up of data and physical objects. A Tale of Two Systems In the former Soviet Union, heating is often centralized. The idea is that, much like the “central nervous system” vision of the Internet of things, heating is something that is best automated. So when it gets colder a thermostat automatically turns up the heat for the whole city, without anybody having to do anything. It’s a good idea in theory, but in practice it leaves something to be desired. Different buildings trap heat differently, people’s preferences are not the same and it takes a while for a system to generate heat throughout a whole city at once. The result is that when it gets cold, the heat doesn’t really ratchet up for a few days, by which time the weather has often warmed up. So people are often freezing for a few days and then sweating in 90 degree apartments once the heat ratchets up. The automated system is somewhat counteracted by the second “central nervous system.” When it gets colder, thousands of people use electric heaters, which are dangerous and inefficient, and when the temperature drops but the heat goes on they open the windows to cool their apartments to a reasonable level. The moral: People will hack. That’s the beauty of the new Web of Things. From Push Marketing to Hack Marketing It used to be that you would research the market to find needs, build a product to address them and then blast out 30 second ads on TV to build demand. Much like Soviet planners, corporate planners would determine what got produced, at what price and for what purpose. Compare that to what Microsoft did with their Kinect game system. When hackers started taking apart the game system in order to build new things with it, they didn’t call their lawyers, they released a software development kit (SDK) to help them along and offered funding for the best ideas. Marketers will have to think in terms of SDK’s and API’s as much as GRP’s and CTR’s. Platforms like Sync and entune will be powerful not for the ideas that Ford and Toyota dream up, but for what outside developers and consumers hack together. What used to be the exclusive domain of white coats in research labs is now giving way to an era of open innovation. Everybody from LEGO to Nike to cosmetics and financial services companies are getting into the act as well, using the Web of Things to cocreate products and services with their consumers. A revolution, albeit a quiet one, is at hand. In the new era of the Web of Things, if you want to build a better mousetrap, you’ll need to ask the mouse. image credit: tucsoncitizen.com Don’t miss a post (4,700+) – Subscribe to our RSS feed and join our Innovation Excellence group! Greg Satell a consultant who concentrates on media, marketing and innovation. Check out at his site, Digital Tonto and follow him on twitter @digitaltonto Real Reason Companies Must Innovate Posted on October 2, 2012 by Rowan Gibson Ask any group of senior executives why they think innovation has become such an imperative, and the answer is invariably, “Because it drives growth.” This is quite a reasonable and obvious way of thinking. Pushed into a relentless and never-ending race to grow earnings faster than the industry average, companies are increasingly turning to innovation as today’s best bet for closing the “growth gap.” Trouble is, by thinking of innovation almost solely in terms of growth, many executives are actually missing the bigger picture. For most companies today, the real issue is not how to grow earnings by a certain percentage from quarter to quarter. It’s how to avoid the big and unexpected downside. Because the thing that kills companies today is not whether they are growing by 8% instead of 12%; the thing that kills them is when they miss some turn in the road – some fundamental change in the external environment – that axes the share price by 50% and sends the firm into the toilet. This is what has wrecked so many companies in so many industries. It might be a disruptive new technology that causes all the trouble, the way digital photography decimated Kodak’s traditional film-based business. It might be a fundamental shift in customer preferences, let’s say from gas-guzzling SUVs to economical, environmentally-friendly hybrid vehicles. It might be another company’s game-changing business model; the equivalent of a Dell in computing, an Amazon.com in books, or an easyJet in air travel. It might be regulatory upheaval in the market, opening up the floodgates to a horde of aggressive new competitors, as we have seen in countless markets and in all manner of industries. Or it could be a lifestyle trend that suddenly turns millions of people off the food, or the drinks, or the clothes, or whatever else it is that you make. So, yes, of course top line growth is important; nobody would argue with that. Maximizing the upside is all well and good. But the real issue is: how do you minimize the downside? A lot of people would reply that minimizing the downside is about being careful and conservative; it’s about avoiding risks. In fact, it’s precisely the opposite. Minimizing the downside is about continually experimenting with new things, recognizing that we are living in a world where the old things can quickly lose their value and become irrelevant. In this new disruptive age, competitive strategies and business models don’t last anywhere near as long as they used to. Therefore, unless a company is innovating deeply and strategically – at the level of the core business itself – economic growth can very quickly turn into economic failure, decay and even death. Of course, the financial risks of experimentation have to be managed too. But, essentially, in today’s turbulent times, the only long-term insurance against the downside is rampant and radical innovation. That’s the real reason for the innovation imperative. Don’t miss an article (4,750+) – Subscribe to our RSS feed and join our Innovation Excellence group! Rowan Gibson is widely recognized as one of the world’s leading experts on enterprise innovation. He is co-author of the bestseller Innovation to the Core and a much in-demand public speaker around the globe. On Twitter he is @RowanGibson. Me, Me, Me Posted on October 2, 2012 by Dean DeBiase Why is it – as new research shows – that despite lots of hype and big increases in traffic from social media platforms to E-commerce sites (up 77% from 2011), very few of the visitors coming from this platform actually buy anything? Why is it that the cranky “dinosaurs” of digital marketing – the email blast and the search result – still far outpace the bright shiny object that is social media when it comes to effectively getting people to buy? According to the analysis, traffic to ecommerce sites coming from email has a conversion rate of 4.25% and from search results 2.49% but from social media platforms just 0.59%. Could it be that one of the most fundamental tenets of marketing has survived even through the new world of technology—relevance? The basic difference in these platforms is that a marketing message delivered through email or one that comes as a result of a keyword search is directed to the individual—a social media message is usually directed to everyone within the community. Even though logically the consumer might know that the same marketing message she or he received through email was sent to hundreds of thousands of other consumers—the message or coupon they received was “just for them”. It was therefore highly relevant. Marketing is successful when it is based on certain truths of human behavior and perception that have been learned over decades of observation and application. No technology can change those basic human truths. And foremost among them is that it is all about “me” and only “me” and if you want marketing to work you better get innovative and you better make it relevant. Don’t miss an article (4,700+) – Subscribe to our RSS feed and join our Innovation Excellence group! A serial CEO and innovation speaker, Dean DeBiase is the Chairman and CEO of entertainment.com, co-founder of boardroominnovation.com and Innovation Excellence, and a co-author of The Big Moo. Kraft “Blank Check” Unleashes Potential and Profits Posted on October 1, 2012 by Sanjay Khosla and Mohanbir Sawhney In 2007, Kraft Foods Inc. was facing a major challenge with Tang — the powdered breakfast drink that had long been one of its iconic brands, made famous in the 1960s when the National Aeronautics and Space Administration included the drink in the rations for U.S. astronauts. The brand was caught in a cycle of underperformance — a situation that commonly bedevils companies as they seek to drive organic growth. In 2007, the leadership team of Kraft’s developing markets identified Tang as one of their top 10 focus brands, and came up with an unusual strategy for boosting the brand’s sales back into the stratosphere: Tang leaders in key countries such as Brazil were given a “blank check,” essentially urging them to dream big and not worry about resources. The results have been astounding. In the last five years, Tang has doubled sales outside the U.S. and become a profitable, US$1 billion brand there (in comparison, it had taken Tang 50 years to reach the $500 million revenue mark). The transformation of brands like Tang helped grow Kraft Foods’ developing markets business from $6 billion in revenues in 2007 to more than $15 billion in 2011, significantly improving margins. The secret of Tang’s turnaround was to free the team from resource constraints that could limit their imagination, inspiring them to achieve unprecedented results that would create a virtuous cycle of growth. This, of course, ran counter to one of the gospel truths in management, that people need to live within their means. Managers have always been taught that they have to work with the limited resources available. Unfortunately, resource constraints limit more than plans. They also limit the creative potential of people. What if resources were not a constraint? If managers were free to dream and act big without worrying about busting their budgets, they would be limited not by resources, but by their imagination. We believe that business leaders can unleash tremendous untapped potential by unshackling their people and their businesses from resource constraints (while still, of course, holding them accountable for results). The key insight is that business leaders, instead of defining budgets and resources, should focus on defining ambitious goals, while leaving it to their managers and their teams to ask for whatever resources they need to achieve these goals. When teams decide their own budgets, they act as owners and are inspired to achieve the impossible. At Kraft Foods (where coauthor Sanjay Khosla is president of the developing markets group), we call this idea a “blank check” initiative. The Concept of a Blank Check A blank check is a metaphor for the freedom a team is given to determine for themselves the financial resources they need to achieve a set of agreed-upon goals within a defined time frame. Blank checks exhort teams to “shoot for the moon,” while giving them the rocket fuel they need to break free of the gravitational pull of predetermined budgets and business as usual. However, blank checks are not a license to spend without limits, without guidelines, or without consequences. Teams have to define the resources they need — they must fill in the amount of the blank check. Every blank check initiative needs to be consistent with the company’s overall business strategy. And it needs to have the potential to produce sustained, profitable growth. Blank checks are not meant to produce “one-hit wonders” that bring a short-term spike in results. The idea of the blank check is to empower big ideas that drive a virtuous cycle and change the business’s trajectory for the long term. Moreover, teams that sign up for blank checks are held strictly accountable for quantifiable results. Blank checks represent freedom within a framework — freedom to act, but with a set of ground rules to ensure that the initiatives stay on strategy and produce results. For example, the framework might include a set of company priorities or areas of focus, innovation platforms, big bets, or even an acquisition strategy that guides the company’s overall strategy or vision. At Kraft Foods, for example, the company’s developing markets business has a focused growth strategy that concentrates on five key categories (e.g., biscuits and chocolate), 10 power brands (e.g., Oreo, Tang, Trident, and Cadbury), and 10 priority markets (e.g., Brazil, India, and China); the strategy is called 5-10-10. [¹] The company uses this strategy as its framework, and gives freedom to select teams in the organization to drive the 5-10-10 growth agenda with blank checks. How Blank Checks Work To put the blank check idea to work, business leaders need to go through a systematic process of picking the best bets, selecting the team, defining goals and plans, kicking off the initiative, and monitoring the results. Here’s what happens at each of these five steps. 1. Picking the best bets. The first step in a blank check initiative is for the business leaders to choose the business domains that should be targeted for growth. Blank checks are designed to fund big bets, so it is important that the bets are chosen carefully. Business domains can be defined in different ways or viewed through different lenses — a geographic market (China, for example), a brand (Tang), a channel (food service), a category (beverages), or a consumer segment (teenagers). The domain can also be a combination of these (Oreos in China). Blank checks can be applied to functional areas, such as the supply chain or manufacturing. We recommend selecting two or three definitions for the domain, at most, and using these definitions to shape the larger strategic context within which to look for blank check projects. The objective is for the initiative to be performance-driven and values-led, as well as compliant with federal and local laws and the company’s compliance practices. As the business leaders choose the domains for the blank check initiatives, they need to keep three criteria in mind. At Kraft developing markets, we call these “the three Ms.” First, the business should ideally have significant Momentum. It is always easier to build on a business domain that is working well than to fix a domain that is broken. A key success factor is to “mine for gold” — to identify what is working and then scale up quickly when the reasons for success become evident. A second key success factor for driving a virtuous cycle of growth is Margin potential in the business. Growth for the sake of growth is often dangerous. Third, the business initiative should be Material — something that produces high impact with the least possible effort. There should be sufficient headroom for the business to grow. 2. Selecting the team. Blank checks are ultimately bets on people, rooted in the faith that they have the potential, the passion, and the perseverance to transform their businesses. Selecting the recipient of a blank check begins with the top leadership team working closely with the leader of a given business to identify the person who is most naturally accountable for a certain area of the business where the blank check can ignite transformation. Team leaders selected for blank check initiatives need not be the most senior or the most experienced — more important is for them to be the people with the most potential. But that is just the initial criterion. The business leaders must ask themselves a series of questions about the blank check candidate. Is this person a natural choice for the challenge based on his or her current responsibilities and span of control? Will this person be willing to take on the responsibility and not be frozen by fear? Is this person capable of being stretched to think in new ways? Does this person have the capacity to inspire others to do things differently? Does this person have a track record of delivering results? If the answer to any of these questions is no, then the business leaders must consider alternative candidates. And if one cannot be identified, leaders may determine that the area of the business they were targeting is not appropriate for a blank check. 3. Defining goals and plans. Once the business leaders have selected a business domain and chosen the team leaders who will receive a blank check, they need to define the targets they expect the teams to achieve. Targets need to be quantified, aggressive, and time-bound. Quantified targets are unambiguous, so everyone clearly understands the nature and goals of the game. Targets should be measurable on well-defined metrics like revenues, gross margins, and cash flow from the business. Targets also need to be aggressive, to the point that they should not be achievable simply by making incremental improvements. Teams should be forced to question all their assumptions about their business and to confront orthodoxies that have been blindly accepted by the company. Blank check initiatives also need to have a short time frame, limited to a few years at most. It is absolutely essential to have a clearly defined set of goals for the first 12 months. The short time frame forces the team members to produce results quickly. They do not have the luxury of pursuing marginal improvements or initiatives that will take a long time to produce results. At this stage, the team leaders are asked to submit a short business proposal (no more than two pages) that reflects the three Ms. The time given to the team to develop the proposal is relatively short. This prevents the team from becoming paralyzed by overanalysis. In some cases, the team may take up to a month to produce a proposal so they can weigh the alternatives in order to ensure they are making prudent business decisions that will nonetheless change the business’s trajectory. In a few cases, the team will decide to turn down the blank check. This is fine, because undertaking a blank check initiative must always be voluntary. The business proposal needs to define the initiative and the key steps that the team will take to produce the agreed-upon results. This includes the goals, the time frame in which the goals will be achieved, steps detailing how the plan will be executed, key milestones and deliverables, and financial projections. At the early proposal stage, the initial execution steps may be outlined, but the full project need not be fully fleshed out. Along with the proposal, the team also must fill in the amount of the blank check — the financial outlay that they are asking for. The amounts of the blank checks we have been associated with have ranged from a few million dollars to $20 million. The amount should be more than enough for the team to carry out the initiative without worrying about running out of money to invest. 4. Kicking off the initiative. Once the business plan has been agreed upon, business leaders need to formally “issue the check” by approving the amount the team has asked for and transferring it into an account that can be accessed by the team leaders. The typical first reaction to a blank check challenge is skepticism. People in corporate settings have been conditioned to fight for every resource. They have been trained to think in terms of budgets, cost cutting, and belt tightening. They have likely never been in a situation in which they can ask for unlimited resources, and may find the idea so foreign that it is difficult for them to believe it at first. Once the team realizes that their business leaders are serious, skepticism can easily give way to fear — fear of failure and fear of being in the spotlight. Fear is often followed by frenetic activity, when the team tends to focus on doing more of the same or doing the same things better. But the team quickly realizes that this linear and extrapolative thinking will not produce the breakthrough results that they need to achieve. This, in turn, leads the team to powerful insights because they are forced to focus on the essence of the business, the brands, and the market. 5. Monitoring results. As the blank check initiative begins, it is important to set milestones for key deliverables, and then to monitor them closely as the initiative proceeds. We recommend quarterly milestones, so that course corrections can be made quickly. As is true of a company’s startup phase, blank check initiatives rarely go according to plan. The team will run experiments and take risks, and some of these experiments will inevitably fail. Failing is part of the learning process. What is important is to fail early, fail cheaply, and learn fast from the failures. Metrics for blank check initiatives should be kept simple enough so that progress can be measured on a single-page report. How Blank Checks Drive Growth To see how blank check initiatives work in practice and the results they can produce, consider the following three case studies. They all describe recent Kraft initiatives in developing markets: The acceleration of the Cadbury business in India, the revitalization of the Tang powdered beverage business, and the transformation of Kraft’s China business. Cadbury India’s sweet success. When Kraft Foods acquired Cadbury in February 2010, India became one of the 10 priority markets for Kraft. It had taken Cadbury more than 40 years to grow the business to $400 million by 2009. During one of management’s first visits with the regional team in February 2010, the leadership team offered Anand Kripalu, president of Kraft South Asia and Indo China, a blank check to make India a half-billion-dollar business by the end of the year — which meant accelerating the region’s growth plans for the year and increasing total sales by 25 percent. The Indian management team’s proposal called for expanding distribution, investing in sales, and increasing the marketing behind Cadbury Dairy Milk, Cadbury’s biggest brand in India. The team based these choices on their conviction that Cadbury Dairy Milk had momentum, offered attractive margins, and was material because it was the most important part of Cadbury’s Indian business. “We turned around the proposal in just a few short days,” says Kripalu. “It was quickly approved, and the next day we shared our new $500 million target with our employees. At first, people thought we had lost our minds. But soon that fear turned to inspiration, once employees realized that we’d been given the freedom and resources to take our business to a new level.” The team took the challenge and ran with it, innovating on several dimensions. When they evaluated distribution channels, for example, the team observed that in some retail outlets, Cadbury Dairy Milk was stored and displayed in “visicoolers” — special display cases that give Cadbury visibility at the retail location and keep the chocolate from melting in the oppressive Indian summer heat. The outlets that had visicoolers generated sales that were 15 percent higher than those at comparable outlets. On the principle of leveraging what works, the team decided to double the number of locations with visicoolers, from 20,000 to 40,000 retail outlets. They also doubled permanent in-store displays for Cadbury Dairy Milk, from 5,000 to 10,000. They expanded distribution into 2,100 additional towns and villages — bringing the total number of sales outlets to 550,000 in India — and increased investment in Cadbury Dairy Milk advertising and promotions by 45 percent. The team also looked beyond chocolate with the “Kuch Meetha Ho Jaye!” (Let’s have something sweet!) campaign, tapping into the Indian tradition of having a sweet bite before life’s most important moments. The idea was to expand the franchise into a larger market of sweets rather than just focusing on chocolate. The results were transformational. In 2010, Cadbury India had its best year ever, with almost 28 percent revenue growth — doubling its original growth targets and exceeding the $500 million blank check target. The momentum continued in 2011 with more than 30 percent growth. The best part? The team did not end up spending all the money they had asked for, and returned a significant portion of their blank check allocation. Doubling the Tang business in five years. The developing markets leadership team decided to issue blank checks to a team of Tang leaders in key global markets, asking that they connect locally with consumers in their market, but leverage the resources of the $50 billion global Kraft Foods organization. The team came up with several innovations quickly. Using Kraft’s global technology resources, they developed locally relevant flavors for Tang such as tamarind and horchata (a traditional drink flavored with lime and cinnamon) in Mexico, mango in the Philippines, passionfruit and soursop (a local fruit) in Brazil, and pineapple and lemon mint in the Middle East. Although Tang’s original orange flavor tops the sales charts worldwide, these local flavors soon made up about 25 percent of Tang sales in developing markets. With the realization that taste is king and children’s diets in developing markets are often deficient in nutrients, the team repositioned Tang as an affordable (pennies per glass), nutritious beverage fortified with vitamins and minerals. True to Tang’s heritage as a source of vitamin C, the team took the global idea of fortification and localized it to meet regional nutrition needs. For example, they fortified Tang with vitamin C in all geographies, but in Brazil and the Philippines, where children often are iron deficient, they added iron as well as other vitamins and minerals. The team also crafted a marketing idea for Tang to create a kids’ movement involving sustainability called the “Preparou, Bebeu, Faz” (Prep, Drink, Do) campaign. Tang is a very green brand — it takes less energy to produce and transport than other beverages because the water is added by the consumer — so the new campaign built upon the brand’s green equity. The team standardized the pouch size and structure across Latin America to reduce 3 million pounds of packaging annually. They took this green idea to places like Brazil and encouraged children to recycle. More than 90,000 kids recycled more than a million packages in Brazil within the first few years. The used packages are recycled into soccer balls, bags, and building materials whose sale raises money for schools. This kids’ movement has been expanded to other markets, including Argentina and Mexico. Inspired by the blank check, the Tang team used local innovation and global technology resources and a collaborative approach to achieve phenomenal results. Tang is Kraft’s newest billion-dollar brand. Its sales have almost doubled in five years, and it is now more than three times the size of its nearest competitor. In 2011, Tang was served 20 billion times in 90 countries. “Having a blank check for Tang allowed us to think differently about this brand,” says Gustavo Abelenda, president of Kraft Latin America. “Our small, virtually connected team had the freedom to develop a global framework for the brand, quickly scale up local innovations, and use global technology to drive explosive growth.” The Tang case illustrates several insights about blank checks. The aggressive targets forced the team to realize that the strategy they had in place at the time, creating new variants of Tang, would not be enough. They also realized, as teams frequently do when taking on a blank check challenge, that they did not have all the answers. They reached out to different types of outsiders, including packaging experts, supply chain experts, and marketing and advertising agencies. They held workshops to discover the essence of the brand, what was different and special about Tang. The packaging experts pointed them to the patented Boato machine from Italy that could mass-produce single-serving sachets of Tang. The team also discovered Tang’s core asset: It tastes better than water, and it is environmentally more sustainable and cheaper than carbonated beverages. This led the team to broaden the positioning of Tang by setting it up to compete against water rather than other powdered beverages. The team decided to “attack water” with the brand positioning “Tang makes water exciting.” Breaking the mold in China. The Tang example was focused on brand success, but the blank check approach can also transform an entire business. Kraft Foods China shows how this can happen. Early on in its experience in China (beginning in 1984), Kraft had aspired to make Kraft Foods China a $1 billion business — to match the 1 billion people in the country. But by 2006, the company’s China business was still very small, about $100 million in annual revenues. And worse, it was plagued by low gross margins; growth for the sake of growth was a waste of time because there was no hope of making money. There seemed to be no point in scaling up something that was not working. It was time to take the way the company did business in China and flip it on its head — and a blank check initiative was the catalyst for that change. “We knew that Lorna Davis, who was China’s new business leader, and Shawn Warren from our region office, who knew our categories and brands well, would make the perfect pair to lead this transformational initiative,” recalls Pradeep Pant, president of Kraft Asia Pacific. “Both had the drive, the creativity, and an inspiring leadership style to make it happen.” With a blank check in hand, Davis and Warren rose to the challenge. In eight weeks, the team came back with what many would consider a risky proposal that seemingly defied logic. Instead of continuing to pour money into the business to chase after unprofitable growth, the team proposed a counterintuitive approach to scale back the business they were trying to expand. “The business was stuck in a vicious cycle,” recalls Davis, who is now senior vice president in the company’s global biscuits category, “and we knew that expanding our current business model was not going to work. The principle of giving trust and support to the local management team with blank checks allowed us to break out of that cycle and transform the business.” Their proposal aligned squarely with the company’s 5-10-10 strategic framework; the team decided to focus their portfolio on a few things that mattered, like biscuits (cookies). The team invested in deepening their local talent pool so they could get closer to Chinese consumers. And they tossed the “not invented here” syndrome out the window by leveraging a “glocal” approach that combined the best of global technology and expertise with local market know-how. Finally, they gave themselves an aggressive time frame to turn the business around. “Our proposal aligned with our 5-10-10 strategy,” says Warren. “Biscuits were one of five key categories, and the brands, like Oreo, were among our 10 power brands. Having the freedom of a blank check helped us take risks, think bigger, and look at the business with fresh eyes.” Today, Kraft Foods China is a success story: The team doubled their innovation rate, transformed Oreo into the number one selling biscuit in China, and posted net revenues of more than $800 million in 2011. Today the business’s advertising spend exceeds the business’s revenues in 2006. Most importantly, Kraft Foods China has a sustainable business model that is delivering a virtuous cycle of growth and is among the fastest-growing CPG companies in China today. Dealing with Failures Blank checks produce spectacular results when they work. However, as with all innovation efforts, a certain percentage of them will be unsuccessful. Business leaders need to be prepared for some of these initiatives to fail. There are two important lessons in dealing with failures — learn from the failures and overcome the fear of failure. Kraft’s Royal affordable nutrition program in Latin America is an example of how to deal with a blank check initiative that doesn’t work out. Kraft believed that there was a large opportunity to drive growth at the “bottom of the pyramid” by developing nutritious yet affordable products for low-income Latin American consumers. A Latin American team took on a blank check challenge and came up with a new affordable nutrition product under the Royal brand — a line of gelatin and pudding desserts featuring fortification with vitamins and 45 percent less sugar. The products tasted good and the price points were affordable. The team also managed to build awareness and secure good distribution for the brand. However, the products failed to sell well, and the gross margins were lower than expected. Kraft decided to pull the plug on this initiative. The team learned many important lessons from this failure. The product involved changing consumers’ attitudes and behavior — a difficult and lengthy process. The positioning of the product as a “treat” did not resonate with target consumers. And the business model was not sustainable: Costs were too high, and the company could not meet the affordability target it had set while still earning an acceptable gross margin. Importantly, the team leading the initiative was not penalized; the team leader was promoted to head the snacks business in Brazil despite the failure, because he took a risk and then learned from his mistakes. Tips for Managing Blank Checks Through our experience with several blank check initiatives in different product categories and markets, we have identified some important principles for improving the odds of success. Focus on what matters. Blank checks must always focus on what matters to the business. In the case of Kraft Foods, blank checks are linked to the company’s “winning through focus” strategy, which allocates resources in line with its 5-10-10 strategy. Create a virtuous cycle of growth. Blank checks can produce phenomenal revenue growth, but this growth should be both profitable and sustainable over time. Business leaders should be careful that teams don’t undertake initiatives that can boost revenues in the short term but that will hurt the business in the longer term. To ensure sustainable profitable growth that drives a virtuous cycle, blank check initiatives need to be gross-margin accretive. Margin expansion can come from increased revenues, from cost reduction, or from productivity improvement. Innovate broadly. To harness the full potential of their business, teams need to take a broad view of innovation that goes well beyond creating new products. They need to innovate with packaging, promotions, advertising, distribution, and partnerships. Simplify everything. Companies are often hamstrung by the complexity of their organizations and their operations. Complexity adds cost and slows down decision making. Blank check initiatives should strive for simplification. Simplification can be achieved in the product (for example, by reducing performance or features to “just enough” levels desired by consumers), in the process (manufacturing, distribution, sales), in the organization (removing layers and moving decision making closer to local markets), and in administration (faster decision making and fewer meetings). Don’t overdo it. It is easy to get carried away by the success of blank checks and approve too many. Blank checks are powerful tools, but they are very demanding in terms of both financial resources and leadership bandwidth. They will produce revenue and profit increases in the long run, but they require significant investments in the short term. They also require a lot of personal attention from business leaders. Just as venture capitalists limit the number of startup investments they make and the number of company boards they serve on, business leaders need to limit the number of blank checks they issue simultaneously. Create a family spirit. Blank check initiatives require every team member to put the collective good of the team above his or her ego and personal point of view. To encourage cooperation and interdependence, the team should think of itself as a family. This attitude can be fostered by adjusting incentives so that team members win when the team wins as a whole. It also helps to host “family dinners” before every major leadership team meeting. Each dinner has a clear agenda focused on two or three business issues that need input from the family. At the end of the dinner, the team arrives at a consensus on the business issues. This practice gives the team clarity on what they need to do and also promotes a sense of shared ownership of the outcomes. Driving Organic Growth It is not easy to find profitable organic growth. Faced with stagnant demand, intensifying competition, and greater pricing pressures, business leaders feel that their growth is constrained by the environment in which they find themselves. However, the constraints are sometimes of their own making. Even seemingly sleepy businesses hold tremendous untapped potential. If business leaders can liberate their people from the limitations of budgets and resources, they will find that their people will surprise both leaders and themselves with what they can achieve. This is the power of blank checks. image credit: carsdirect.com [¹] See “Growth through Focus: A Blueprint for Driving Profitable Expansion,” by Sanjay Khosla and Mohanbir Sawhney, s+b, Autumn 2010. This article was originally published August 6, 2012, on the strategy+business website, published by Booz & Company Inc. Copyright © 2012. All rights reserved. Don’t miss an article (4,700+) - Subscribe to our RSS feed and join our Innovation Excellence group! Sanjay Khosla is president of developing markets at Kraft Foods Inc. Mohanbir Sawhney is the Robert R. McCormick Tribune Foundation Clinical Professor of Technology and director of the Center for Research in Technology & Innovation at the Kellogg School of Management at Northwestern University. Innovation Excellence is the online home of the global innovation community, building upon a rapidly-growing network with thousands of members from over 175 countries – thought leaders, executives, practitioners, consultants, vendors, and academia representing all sectors and industries. Our mission is to broadly enhance innovation by providing a forum for connection and conversation across this community – assembling an ever-growing arsenal of resources, best practices and proven answers for achieving innovation excellence. Our community currently generates over 225,000 unique visits and requests more than 800,000 pages every month. 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