Daily Archives: November 28, 2007

the doctor Wonders If The Age of American Innovation Is Coming To An End

Recently, I predicted that India would be the eventual winner of the talent war. This is because they have the people, the culture, continually increasing capital inflow, education, the will, and an increasing amount of openness – in contrast to the US, which is more intent on keeping just about everyone out than letting innovators in.

I’m not going to make a prediction as to who’s going to win the innovation challenge, because innovation takes more than just talent, but I am willing to predict that, the way things are going, it’s not going to be North America. (I’m also excluding Canada because, these days, you can’t be Prime Minister unless you’re willing to take your lead from the US President, whomever that happens to be.)

Basically, I agree with John Kao, as quoted in The Age of Mass Innovation. I think America will lose its global lead and become “the fat, complacent Detroit of nations“, even with Silicon Valley. As Mr. Kao points out, America’s under-investment in physical infrastructure, its pitiful public schools, and frostiness towards immigrants – even though immigrants built North America into what it is today – is the first step on the road to complacency.

Furthermore, as pointed out in Revving Up, China now makes half the world’s motorcycles and India’s Tata Motors is working on a “people’s car” that might radically change the process of design, manufacturing, and distribution in an effort to achieve its target price of no more than $3,000. Today, China is the country that’s pioneering new types of management techniques – that’s a long way from the low cost country we still like to think it is. The fact is, developing countries now have higher levels of “early stage” entrepreneurship than just about every country in the developed world.

And let us not overlook the fact that, as pointed out by Diana Farrell and quoted in The Fading Lustre of Custers, the real problem holding back innovation in many developed countries is too much government in the form of red tape and market barriers. These days, the government has to regulate everything – including the things it knows nothing about.

Considering that we’re full-tilt into the “knowledge economy”, with manufacturing down to a fifth of economic activity in rich countries, it’s down to innovate or die.

Increasing Your Global Presence

As a nice follow up to my When Going Global – Don’t Forget the Context post, I’d like to draw your attention to the finer points of an article that interviews Chris Zook, author of Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth, over on Knowledge@Wharton called Achieving Full Potential: How Companies Can Increase their Global Presence. The article, which starts off by noting that over the next decade, 25% of the companies that exist today will disappear, either because they will merge with others or go bankrupt, discusses some of the major problems companies encounter during growth and some of the solutions they should be considering.

According to Mr. Zook, and the research undertaken by his consulting firm Bain & Company, only one in ten companies worldwide achieve more than a modest level of sustained and profitable growth (at least 5.5% real revenue and profit growth). Very few achieve aggressive growth. The major problem is that industries are becoming turbulent at a faster, and faster, pace. The most profitable activities are shifting quickly, and competitive differentiations are becoming harder to maintain.

A company needs to decide if should stay focused on core business (Focus), expand its core business beyond its current markets and geographies (Expand), or begin the search for hidden sources of new potential growth (Redefine). It’s the third phase that is the most interesting, and the most challenging. According to Mr. Zook, successful redefinitions are based on “hidden assets” — customer assets, growth platforms, or underutilized capabilities which suddenly assume a center role in how you look at your business going forward.

Hidden customer assets are undervalued market segments and under-exploited customer insight. Focusing on a different market segment can greatly increase market-share. (The example given is Hartman International that gained a 40-fold increase in market value by focusing on automotive OEMs and home entertainment consumers.) If you look closely at what your customers are buying and asking for, that can often tell you what you should be offering. Amazon.com, FedEx, and American Express evolved their business by focusing on the customer, and look at where they are today.

Undervalued growth platform often takes the form of a secondary product line or strong support services that have developed over time around your core offering. For example, let’s say you have an OLAP product that can understand native output of 20 different databases – chances are your ETL tool on its own is now a valuable product. Or lets say that you support your enterprise application on Linux and Windows – maybe your Linux support division knows more about properly configuring enterprise Linux installations than most of the integration houses.

Underutilized capabilities, which are the processes and methodologies used to get things done, are the hardest to pin down – and successfully monopolizing on these will require a lot of innovation. The example Mr. Zook gives is Apple – faced with a rapidly shrinking share of the computer market, it decided to utilize its unique UI strengths to create a music device (the iPod) that was much easier to use than anything else out there and it took the consumer world by storm. A lot of companies build hardware and software products, but very few have mastered the art of user interface design as Apple has. Underutilized capabilities will be those that are not only unique in your company, but relatively unique in your industry.

All in all, great starting points, but I was a little disappointed it left out under-utilized human resource assets. Every decent-sized company has them, but few are willing to utilize them. The fact of the matter is that many corporate executives and managers typecast people to their roles. They think that if you’re an IT manager, you can’t possibly have any good ideas on how to improve the physical supply chain or innovate new business service offerings. Or, my favorite, you’re a scientist / architect – you don’t know the first thing about management.

I have personally worked with, and for, a large number of start-ups and small companies, and many of these as a technologist in my early days. And what I discovered is that many entrepreneurs were not only poor managers, but poorer still at making use of the people they would assemble. They were the first to typecast you into whatever role you filled and assume you didn’t know anything about anything else or, if you did, not more than them. Many of these companies are no longer around, and most didn’t even survive a third of the 14 years that Bain & Co. calculated as the average business life span. And in most of the later cases, I could predict that early on. I’ve found that many entrepreneurs are great at ideas, but poor at running a company, managing a team, selecting the best marketing plan, and choosing the right technology. Similarly, I’ve found that many career managers are poor at innovation. The successful entrepreneurs and successful managers are those that are able to identify talent and use that talent to their advantage – taking the best ideas that their team is able to have to offer versus just the best ideas they can come up with.

In summary, if you want to take your presence to the next level, Mr. Zook has some great ideas, but I’d start with your people first – they are the biggest assets you have and they are the ones who will figure out what customer assets, growth platforms, and capabilities you have at your disposal. (You might need to bring in a consultant to lead this initiative, as they will be able to look at your people more objectively, but the ultimate goal is to get to the point where the consulting team you bring in to do a project complements the skills your team already has. )