Speed vs Strategy

by Steve McKee

Cristobal Conde is CEO of SunGard, a leading global software and IT company. In an interview with the Wall Street Journal, Conde was asked what has been the best move he's made during the downturn. He answered, "We could have generated more earnings by having more layoffs. We wanted to protect R&D. We wanted products ready to go at the end of the cycle. I saw a huge competitive opportunity to protect programmers when others weren't."

Conde's perspective is smart, but rare. Our research shows that most companies overreact to a downturn and cut not just fat, but muscle. If they go beyond what's absolutely necessary, that can easily compromise their future. Conde turns the fear on its ear by asking his employees "What is it you need to do now so you will remember the crisis as a gift?"

Chilean by birth, Conde has developed a taste for a uniquely American institution: NASCAR. Perhaps it's because he sees in racing similar patterns to those of business. "Going into the crisis is not that different from going into a turn," he says. "You slam on the brakes. In the turn, the most important thing is your position relative to other cars. I've been telling people, 'Focus on our relative market shares rather than overall volumes you can't control. What are we doing to improve our position?' After the turn, you take that better position."

Conde can't guarantee that SunGard will come out of the recession a winner, just as even the best NASCAR drivers don't know when they'll cross the finish line first and when they'll come up short. But races are decided by the strategy of the driver as much as the speed of the car.

Drive smart.


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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Innovating Your Wallet

by Drew Boyd

Innovation puts cash in your wallet. But what about the wallet itself? For this month's LAB, we will apply the corporate innovation method, S.I.T., to create new and useful concepts for the wallet.

Wallets are the most personal items we own. They carry our money, credit cards, identification, licenses, photographs, and other memorabilia. Your wallet says a lot about you. As with food, we try to stuff more inside while staying thin. Wallets have been around a long time. Today, the wallet industry is a multi-billion dollar market fueled by new designs and innovation.

Here are six unique wallet concepts invented using the five templates in the S.I.T. method. They were created by graduate students at the University of Cincinnati as part of their course requirements in "Applied Marketing Innovation."

1. FINANCIAL WALLET: "A complete personal financial guide to assure financial success." This concept features an online portfolio manager, a stock ticker, account summary, Forex calculator, and Quicken integration.

• Benefits: stay alert to changes in your financial situation so you can make better, real-time decisions to manage your personal finances.

2. ARMOR WALLET: "The most secure wallet on the planet! Helps protect and manage your critical information." This concept features titanium casing, fingerprint scanner, auto-lockdown, missing card alert, and a data manager.

• Benefits: keep your financial instruments secure, get easy access to your important information, and be alerted when something is not right.

3. TRENDSETTER WALLET: "Always keeps you high on fashion. The ultimate style statement." This concept features color changes according to your mood, attire, and occasion. It stores and displays pictures on an LCD screen to capture memories, plays the most hip music, gets real time fashion updates, gives you full body views with an advanced zoom in and zoom out mirror.

• Benefits: helps you match your fashion to your state of mind.

4. SHOPPERS PARADISE WALLET: "The most convenient shopping companion that always gets you the best deal." This concept features credit card select (the appropriate credit/debit card pops out while shopping), then alerts you until the credit/debit card is back in the wallet. It manages your to-do list and shopping lists, and it gets graphical information on your expenditure with tips on money management. The wallet searches for the best discounts, and it controls cash flow with an online budget tracker. It has an aisle navigator to help you shop more efficiently.

• Benefits: gives you an enjoyable shopping experience while saving you money.

5. GLOBETROTTER WALLET: "The ultimate travel guide that makes you feel right at home anywhere in the world." This concept features built in GPS, trip management, food/tip management, weather watch, language translator, and current Forex rates.

• Benefits: helps you get the most out of your travel experience by staying informed about what is going on around you.

6. FITNESS WALLET: "The perfect personal trainer to suit all your work out needs." This concept features a heart rate monitor to check workout intensity, digitized locker key, first aid kit, stopwatch, distance and time, calorie watcher, MP3 player, sports updates, and a fitness scheduler.

• Benefits: helps you maximize the time spent staying in shape.

Check out this and the other Dream Catalogs at the Innovation Wiki.

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Drew Boyd is Director of Marketing Mastery for Johnson & Johnson (Ethicon Endo-Surgery division). He is also Visiting Assistant Professor of Marketing and Innovation at the University of Cincinnati and Executive Director of the MS-Marketing program. Follow him at www.innovationinpractice.com and at http://twitter.com/drewboyd

How a Blizzard Saved the ATM

by Stephen Shapiro

"Build it and they will come." We hear that mantra a lot. But with innovation, it is often more like, "Solve a pain and they will come." The ultimate success of the Automated Teller Machine (ATM) is a great example of this.

The other night I was having dinner with someone who in the mid-1970's worked with Citibank, the second largest bank at the time. He shared with me the story of the birth of the ATM, at least from his perspective.

In 1977, after investing hundreds of millions of dollars in ATM technology research and development, Citibank decided to install machines across all of New York City. But at first, they were not very popular. The technology was confusing to first-time users, the machines were not always accurate (they sometimes dispensed the wrong amount of money), and they were impersonal. I was told that customers who used ATM machines were so frustrated that many closed their accounts.

The ATM may never have been an instant hit if it weren't for a natural disaster.

January 1978 will always be remembered for a blizzard that dumped as much as four feet of snow in the Northeast. In New York City, nearly two feet of snow brought the city to a halt. Banks didn't open. Instead, people got their money from supermarkets. But most of those quickly ran out of money.

This created a massive 'pain'.

Where did people turn? The ATMs. It is estimated that during the storms, use of the machines increased by over 20%. Soon after, Citibank started running TV ads showing people trudging through the snow drifts in New York City. That's when the company introduced their wildly popular slogan, "The Citi Never Sleeps." This was the real birth of the automated teller machine.

I found an interesting Fortune article that corroborates his story. The article claims that by 1981, Citibank's market share of New York deposits had doubled. A lot of this growth could be attributed to the ATM.

This story illustrates an innovators dilemma. Brilliant innovations are not necessarily taken up by the masses. Some ideas just need time to incubate and gain acceptance. But can your business survive long enough to see the success? Too many ideas, like Webvan, could not endure the incubation period. Sometimes your innovations need a little boost.

As I have pointed out in previous blog entries, people take massive risks to eliminate their pains, but play is safe when it comes to adding convenience. ATMs were primarily about convenience. What did it take for them to become a success? A pain caused by a natural disaster.

Are your new ideas solving a pain? Or are they just a nice to have? If they are just a convenience, what can you do to create a pain - without having to rely on a natural disaster?

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Stephen Shapiro is the author of three books, a popular innovation speaker, and is the Chief Innovation Evangelist for Innocentive, the leader in Open Innovation.

When Innovation Goes Wrong

by Rowan Gibson

Ever since innovation became the buzzword du Jour, a lot of people seem to have lost their ability to tell smart ideas from stupid ones. Case in point: the financial "innovations" (read: stunningly stupid loan products) that kicked off the trillion-dollar economic meltdown mess we're currently in. The simplistic notion that "new equals good" has often been a recipe for grand-scale disaster, just as it was in the dotcom debacle at the turn of the millennium. And when the doo-doo inevitably hits the fan, it's all too easy to level the blame at innovation per se rather than admit to being a bonehead. Here's why many ideas that are labeled "innovations" are just plain stupidity.

Simply put, innovation goes wrong (sometimes big time) when an organization over-commits to an idea before validating the key assumptions on which it is based. Let's take the infamous sub-prime mortgage. The assumption here was that a jobless, homeless person who is just out of jail and doesn't even have a bank account can afford to make mortgage repayments of any description, let alone horrendously overpriced ones.

The idea of selling mortgages to poor people with bad credit was clearly "new" given that banks have traditionally offered 30-year, fixed-rate amortizing home loans to people who looked like they could actually pay the money back. But going after this risky, low-end market segment with a ripoff financial product wasn't exactly what C.K. Prahalad had in mind when he talked about "the fortune at the bottom of the pyramid". And it turns out - duh! - that this particular "financial innovation" wasn't a very smart one (to put it mildly), and even less smart when used as the cornerstone for a multitrillion dollar house-of-cards based on endless derivatives of derivatives.


"Innovation can never be risk-free, but you can certainly make sure you look before you leap."


It's precisely big boondoggles like this one that give innovation a bad name. In fact, columnist Paul Krugman wrote in the New York Times that "financial innovation" is a phase that "should, from now on, strike fear into investors' hearts." Yet should the financial services industry - or any industry for that matter - now decide to "throw the baby out with the bathwater" when it comes to innovation? Absolutely not. It's worth remembering that over the last couple of decades, innovation has given us a string of success stories in financial services: Charles Schwab's online equity trading, Commerce Bank's open-all-day, seven-days-aweek business model, First Direct's branchless banking, Grameen Bank's micro-credit lending concept, PayPal's user-friendly, online-payment service, or Umpqua Bank's people-centered retail environments, to name just a few. The difference with these opportunities is that they were all based on very solid assumptions about the viability and sustainability of the business model; they were not built on proverbial sand. That's why these innovations have created significant new value and wealth, instead of destroying it.

Unfortunately, there are all too many cases where companies have overcommitted to an idea that wouldn't even pass the sanity test. These tend to be ideas where the customer benefit is unclear or unimportant to people, or where the technology is not yet up to the task, or where the market is just not there, or where the business model is so stupid that it's dead on arrival. Instead of first checking the validity of critical assumptions on which the idea is based, sometimes a company (or even a whole industry) decides to jump from 10,000 feet without a spare parachute, hoping against hope that the thing will somehow work.

Take Iridium, Motorola's failed satellite telephone venture, which was built on a fundamentally flawed assumption about the size of the target market. Basically, Motorola totally underestimated the speed at which cellular coverage would spread. Their premise was that there would be huge regional gaps in the global network - parts of the world that would have no mobile phone coverage for a long time to come. That would have made Iridium the perfect answer. It turned out quite quickly that those regions would be very few and far between (you would practically have to be an Arctic explorer to need an Iridium phone!), so the target market soon shrank to insignificance. This is something Motorola should have known better.

Or take Webvan, the "oh-so-dotcom" online grocery business that burned through a billion dollars and went belly-up. There was nothing fundamentally flawed about the idea of online grocery shopping, as a host of other retailers have since proven. Rather, Webvan's massive failure was based on a whole series of flawed and untested assumptions around the customer value proposition, the economic engine, the value of partnerships, and the product and service offering.

Business history is full of such examples: from Coca-cola's infamous "New Coke", to GM's all-electric EV-1 project (which cost a billion dollars and sold only 700 vehicles), to all those other empty dot-com business models in the late 1990s - like Pets.com - that quickly disappeared. The lesson from all these disasters is to look before you leap. A company should first reduce the uncertainty surrounding critical project assumptions before committing irreversible and non-recoverable resources to an idea. The greater the uncertainty surrounding these assumptions, the greater the risk associated with any new opportunity. Therefore, the focus of an innovation project should initially be on learning rather than earning. It should be on launching experiments to test whether a business model makes sense or not, or whether a new technology will work or not, or whether customers would value the new service, or what they would be willing to pay for it, or which product configuration would work best, or which distribution channels would be most effective, and so on.

Clearly, innovation can never be risk-free. But the process of validating or invalidating these critical project assumptions should stop you from ever completely misreading the basic economics of an opportunity. It will make sure that hubris never gets the better of humility.

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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.

When Innovation Fails

"Innovation can never be risk-free, but you can certainly make sure you look before you leap."

Ever since innovation became the buzzword du Jour, a lot of people seem to have lost their ability to tell smart ideas from stupid ones. Case in point: the financial "innovations" (read: stunningly stupid loan products) that kicked off the trillion-dollar economic meltdown mess we're currently in. The simplistic notion that "new equals good" has often been a recipe for grand-scale disaster, just as it was in the dotcom debacle at the turn of the millennium. And when the doo-doo inevitably hits the fan, it's all too easy to level the blame at innovation per se rather than admit to being a bonehead. Here's why many ideas that are labeled "innovations" are just plain stupidity.

Simply put, innovation goes wrong (sometimes big time) when an organization over-commits to an idea before validating the key assumptions on which it is based. Let's take the infamous sub-prime mortgage. The assumption here was that a jobless, homeless person who is just out of jail and doesn't even have a bank account can afford to make mortgage repayments of any description, let alone horrendously overpriced ones.

The idea of selling mortgages to poor people with bad credit was clearly "new" given that banks have traditionally offered 30-year, fixed-rate amortizing home loans to people who looked like they could actually pay the money back. But going after this risky, low-end market segment with a ripoff financial product wasn't exactly what C.K. Prahalad had in mind when he talked about "the fortune at the bottom of the pyramid." And it turns out - duh! - that this particular "financial innovation" wasn't a very smart one (to put it mildly), and even less smart when used as the cornerstone for a multitrillion dollar house-of-cards based on endless derivatives of derivatives.

It's precisely big boondoggles like this one that give innovation a bad name. In fact, columnist Paul Krugman wrote in the New York Times that "financial innovation" is a phase that "should, from now on, strike fear into investors' hearts." Yet should the financial services industry - or any industry for that matter - now decide to "throw the baby out with the bathwater" when it comes to innovation?

Absolutely not. It's worth remembering that over the last couple of decades, innovation has given us a string of success stories in financial services:

• Charles Schwab's online equity trading


• Commerce Bank's open-all-day, seven-days-a-week business model


• First Direct's branchless banking


• Grameen Bank's micro-credit lending concept


• PayPal's user-friendly, online-payment service


• Umpqua Bank's people-centered retail environments

The difference with these opportunities is that they were all based on very solid assumptions about the viability and sustainability of the business model; they were not built on proverbial sand. That's why these innovations have created significant new value and wealth, instead of destroying it.

Unfortunately, there are all too many cases where companies have overcommitted to an idea that wouldn't even pass the sanity test. These tend to be ideas where the customer benefit is unclear or unimportant to people, or where the technology is not yet up to the task, or where the market is just not there, or where the business model is so stupid that it's dead on arrival. Instead of first checking the validity of critical assumptions on which the idea is based, sometimes a company (or even a whole industry) decides to jump from 10,000 feet without a spare parachute, hoping against hope that the thing will somehow work.

Take Iridium, Motorola's failed satellite telephone venture, which was built on a fundamentally flawed assumption about the size of the target market. Basically, Motorola totally underestimated the speed at which cellular coverage would spread. Their premise was that there would be huge regional gaps in the global network - parts of the world that would have no mobile phone coverage for a long time to come. That would have made Iridium the perfect answer. It turned out quite quickly that those regions would be very few and far between (you would practically have to be an Arctic explorer to need an Iridium phone!), so the target market soon shrank to insignificance. This is something Motorola should have known better.

Or take Webvan, the "oh-so-dotcom" online grocery business that burned through a billion dollars and went belly-up. There was nothing fundamentally flawed about the idea of online grocery shopping, as a host of other retailers have since proven. Rather, Webvan's massive failure was based on a whole series of flawed and untested assumptions around the customer value proposition, the economic engine, the value of partnerships, and the product and service offering.

Business history is full of such examples: from Coca-cola's infamous "New Coke", to GM's all-electric EV-1 project (which cost a billion dollars and sold only 700 vehicles), to all those other empty dot-com business models in the late 1990s - like Pets.com - that quickly disappeared. The lesson from all these disasters is to look before you leap. A company should first reduce the uncertainty surrounding critical project assumptions before committing irreversible and non-recoverable resources to an idea. The greater the uncertainty surrounding these assumptions, the greater the risk associated with any new opportunity. Therefore, the focus of an innovation project should initially be on learning rather than earning. It should be on launching experiments to test whether a business model makes sense or not, or whether a new technology will work or not, or whether customers would value the new service, or what they would be willing to pay for it, or which product configuration would work best, or which distribution channels would be most effective, and so on.

Clearly, innovation can never be risk-free. But the process of validating or invalidating these critical project assumptions should stop you from ever completely misreading the basic economics of an opportunity. It will make sure that hubris never gets the better of humility.

---

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation.