Alice.com Proves Not Making Money Can Be a Winning Strategy

by Ric Merrifield

It doesn't happen very often, but sometimes I hear about a new company or a new innovation and slap my forehead wondering why I didn't think of it first. Netflix was a little bit like that, but I heard about alice.com today and that one in particular bugs me because I have been writing about the basic idea behind Alice for nearly three years, I just hadn't thought to turn it into an actual Web storefront.

So what is Alice and why is it such an a great idea? Well, Alice (named for the Brady Bunch character - good move), is a site that sells consumer goods over the internet. Things like soap, toilet paper, laundry detergent, and so on. The clever part about their model is that they don't make any money selling the products that they offer. They make their money selling advertising on the site, and selling purchase data back to the manufacturers (which the manufacturers have wanted, but lacked forever). Data is king in the world of sales, and Alice is positioning itself to be the impartial third party that sits between the customer and the manufacturer. As long as Alice doesn't compromise the identities of their customers, I don't see how they can lose. Customers value price and manufacturers value richer customer data (what they buy and what causes them to buy), and everyone wins.

This model is in some respects like Costco in the sense that they also don't try to make any money selling the products in their stores. It's no secret that Costco's profits come from their membership dues and that model has served them (and their shareholders) very well for a long, long time. Counter intuitive, but brilliant in retrospect.

I love the spin that Alice is putting on this, and with such a great name, the only way they can fail is in execution, and with two seasoned leaders, that seems pretty unlikely.

This is the kind of rethinking other organizations need to be doing right now. Instead of just optimizing business models that are based on the old fashioned brick and mortar models (like narrow margins on markup), there are so many opportunities to solve age old problems (like manufacturers not getting good data on who is buying their products - and what advertising actually causes customers to buy their products). People need to figure them out like Alice.

I am half tempted to start a site that sells meat at cost and call it Sam (after Alice's boyfriend, the butcher), but meat's a very different animal, if you will.


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Ric Merrifield is known at the "Business Scientist" at Microsoft Corporation in Redmond, WA and is the author of "Rethink". He blogs about ways to rethink through getting out of what he calls "the 'how' trap".

Increasing Innovation Productivity

by Stefan Lindegaard

In a 2006 article, P&G's New Innovation Model, P&G stated that their open innovation program - along with improvements in other aspects of innovation related to product cost, design, and marketing - made their R&D productivity increase by nearly 60 percent since 2001.

When I listen to P&G talks on innovation today, the innovation productivity has nearly doubled and open innovation is a key reason for this.

Every company would like to increase their innovation productivity significantly so I am looking into how companies can do this. I am still researching and it would be great to have a discussion here on my blog. A few conversation starters:


What does innovation productivity mean?

In this video, P&G gives us some insight on innovation productivity including this quote from A.G Lafley: "...the other obvious way we measure innovation productivity is how much innovation do we generate per person and how much innovation do we generate per dollar invested in innovation." You can read a transcript at the link.

Which other metrics can we use to track innovation productivity?


Maximizing Innovation Productivity

In this article, PRTM focuses on four areas of opportunity that offer high potential for productivity and innovation leverage but are often overlooked or underutilized by development organizations: platforms and architectures, resource management, information automation, and cross-functional teams.

To which extent does your company apply this? Does it deliver results? What else do you do?

I look forward to hearing your thoughts and input on this.


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Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.

Why Open Innovation Matters

by Stefan Lindegaard

A few weeks back someone told me an interesting story about Procter & Gamble and their competitors. It is well-known that P&G is the open innovation champion and their long focus on open innovation has given them an important advantage.

They get to see interesting proposals within their business areas before their competitors. In the story I heard, one of P&G competitors complained they only saw ideas and proposals that P&G already had rejected. Ouch, talk about being a second-tier choice...

This leads to a very important point on open innovation for market leading companies and those aspiring to be. The key game is to become the preferred partner of choice.

A preferred partner of choice simply gets to see the best ideas first and such a position can help a company out-innovate their competitors and develop substantial long term overall business advantages.

As each industry only has one - or perhaps two - winners in this game, companies should begin to focus harder on their open innovation strategy and efforts. It becomes even more important as this positioning game already plays out in many industries. Let me give you a couple of examples.

Mobile phones: Apple and Nokia seem to have taken the lead here. I do not see much open innovation activity from Motorola, Samsung, HTC and the other players.

Software: IBM, SAP and Intuit are doing great things here. I acknowledge that software is a very broad business category that can be divided into smaller segments. Nevertheless, these are the companies I hear about on open innovation. What about the many other companies?

Technology: Cisco seems to build momentum over their direct competitors HP, Alcatel-Lucent and Juniper Networks.

Companies should have in mind that this game is very much about perception. A company starts an open innovation-like initiative and if they get some success they are encouraged to continue down this path. This is picked up by bloggers and others in the open innovation community and the word quickly spreads that a certain company is doing interesting things.

This spreads just as fast in the industry of the given company resulting in two things; internally the company gains even more momentum on their open innovation efforts and externally the company is perceived as an open innovation leader within the given industry.

Voila, the company is on its way to claim a preferred partner status and if they do not mess up they can soon reap the benefits of this.

I think this provides another example of why companies need to wake up with regards to open innovation. Your thoughts?

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Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.

Innovating From the Outside In

by Damian Kernahan

In the previous article of the Australian Innovation report (Summer 08), we spoke of customer-centric innovation being the management discipline for the new millennium and provided an inside look into a number of Australian companies that have excelled as a result of taking a customer-centred approach.

In this article, we will take a step further and delve into the emerging discipline of user-centred innovation - or user-centred design, as it has come to be known - and investigate how some of Australia's leading companies are using it to advance their growth agenda.

Web designers have had a focus on usercentred design and have used it successfully as a discipline for many years and any Google search you care to undertake will be littered with web page and digital references. So what is 'user-centred design' and why hasn't it taken off in the mainstream of Australian business? Why haven't Australian businesses embraced using a methodology that allows them to get up close and personal with their customers and truly understand their customers' unmet needs and wants for both products and services? And what is the process for user-centred design and how can companies employ it to keep hold of their most valuable customers in a market where every customer is increasingly precious?

This article intends to examine the answer to all those questions and hopefully shed some light on an increasingly powerful process that is driving substantial growth for some companies ahead of their competitors.

The term user-centred design was coined by Donald Norman from the University of Southern California in the 1980s. He defined it as "the process in which end-users influence how a design takes shape. It is both a broad philosophy and a variety of methods." The most important concept, he believed, was that users were involved one way or another along the entire journey and not just at the end of the process.

Over the past two decades user-centred design has developed greater recognition and is now seen as a philosophy and a process in which the needs, wants, and limitations of the end user are given extensive attention at each stage of the design and development process. From a commercial perspective, IDEO, the leading innovation consultancy globally, has successfully employed this approach for over twenty years and call it 'human-centred design' defining it as "a process and a set of techniques used to create new solutions for the world. When we say solutions, we mean products, services, environments, organisations, and modes of interaction."

The reason the process is called 'humancentred' (user-centred) is because it starts with the people who the products or services are being developed for. The starting point of the process is to examine the "needs, dreams, and behaviours of the people we want to affect with our solutions". This is a very different lens than most companies start with. Normally they only use a business lens that asks "How can I sell more phones/insurance/movie tickets etc to my current and future customers?"

By comparison, user-centred design seeks to listen to and understand what customers may want. Once it is clear what customers are looking for from the universe of what is desirable, the next phase is to view the solutions developed through the lenses of feasibility (what is technically and organisationally possible) and finally viability (what is financially viable for the business).

It is the solving of the business problem through these three lenses that creates significantly increased value for the companies employing the methodology.

Early users of user-centred design included Proctor & Gamble back in the 1970s. As a pioneer of in-situ or user-centred research, they sent researchers into customers' homes to observe them directly as they went about their daily chores. Interestingly, what they found was that P&G's in-situ market research helped to solve problems that the customers themselves were not aware of.

In one of the earlier examples, P&G, when conducting in-home research, observed that some liquid laundry detergent ran down the front of the bottle when it was being poured. Soon, P&G came up with a simple redesign of the spout that funnelled any drips back into the bottle. This simple user-centred innovation led to a dramatic increase in sales.

As with most of these things, customers had been happy to use a workaround and to wipe the drip away with a piece of cloth. This is a classic case of being able to improve the product based on user needs, something that will unlikely come out of a traditional research program that employs focus groups. Why? Because often the elements that make for inconvenience are perceived as so small that they never bubble to the surface using traditional research methods.

For an approach that sounds so compelling and has produced so many commercial successes overseas, why hasn't it taken off in Australia and why aren't companies using it to advance their growth agenda?

Interesting research conducted by David Tunnicliffe of Arnold & Bolingbroke last year went some of the way to answering that when he found that there is not much in the way of innovation in research methodology in Australia. In his findings, dynamism was rarely a quality attributed to market research. Across the sample, there was a palpable sense of there being little drive, from within the research community, towards genuine innovation.


"Why hasn't Australian business embraced using a methodology that allows them to get up close and personal with their customers and truly understand their customers' unmet needs?"


At worst, respondents felt qualitative research methods, in particular, to be verging on hackneyed and predictable but also a more general feeling of there being "little new under the sun" was commonplace. The perceived absence of methodological innovation served to increase reliance on individuals. One respondent from a well-known brand consultancy said that "Even the young clients tire of the routine of the groups behind the glass. I often feel this too; I'm not sure how to move toward more of an ongoing conversation with consumers rather than this artificial kind of intervention from time to time in a group discussion."

Across the sample, there were calls for greater innovation from both marketing services companies and clients with one respondent saying: "What I don't want to do is some standard research that is going to result in the same old debrief. I would welcome a more creative approach to methodology." And another, looking for a more innovative approach: "I'm always keen to see new methodologies; out-of-the-box thinking. What everyone does is no longer interesting. If I can see that someone would add to the pot, that's more interesting."

In addition to well-worn and decreasingly valuable research methods, we believe most Australian companies take a more confined approach in attempting new products innovation versus taking a wider, more expansive view of how successful innovation can be achieved and where the greatest value for their organisation can be created. A trap a lot of companies fall into is to think of innovation too narrowly - they define it merely as the thing your firm offers. Another more powerful option and one which successful companies use is to use reframing as a tool, by using a different lens and turning that lens onto other aspects of their business to reveal new possibilities and value creation.

The Doblin Group helps companies look at creating greater value by innovating not just in one area like 'product', but by applying a lens across ten different areas, which then forms a multiplier effect when applied to a firm's business problem.

Across the ten types of innovation, they include 'inside-out' categories such as core and enabling processes, product/service performance, service systems and customer service.

There are also what they call 'outside-in' categories which include channel, brand, customer experience, business model and value networks. The inside-out perspective is similar to the traditional understanding of value chains. It asks the question, "What strategic assets and/or core competencies does our organisation possess and what products or services can we produce with them?" This is the framework that a lot of companies use and is normally quickly followed with a generative project to develop a range of new products and services which the company hopes will be seen as innovative by the market.

What is missing is the outside-in thinking that inverts and complements this traditional perspective, asking instead, "What do our customers want and need and how can our organisation construct new business models, a new ecosystem of partnerships or external relationships or a significantly improved customer experience to deliver it to them?"

This second step of truly understanding consumers' unmet needs and wants is where the value is created and where user-centred design plays a valuable role in helping organisations achieve that value.

Which draws the inevitable question of why focus on needs?

Dev Patnaik and Robert Becker, who are the founders and principals of Jump Associates in the USA, are probably among the leading experts in 'needfinding', one of the key planks in delivering commercially successful user-centred design. They have proved that an understanding of people's needs can be leveraged across an entire business activity, providing increased value beyond the development of any single product. They see four compelling reasons for companies to focus on uncovering needs as the starting point of a user-centered design approach.

The first is that needs last longer than any specific solution that may be developed which is often the focus of most companies. They say that thinking of the company as a provider of a solution may encourage the company to continue improving that solution, but it rules out creating entirely new offerings that satisfy the need in different ways. Conversely, focusing on needs encourages companies to continue innovating better ways to serve those needs, independent of current solutions.

Second, needs are business opportunities waiting to be exploited by companies that understand that although solutions may come and go, needs are generally enduring and are satisfied by a range of solutions over time. A good example is the need for humans to enjoy music wherever they go. Over the past few decades that need has been satisfied by cassette players, compact discs, Walkmans, computers and most recently MP3 players. Same need, different solutions.

Third, focusing on needs provides a roadmap for development and a method for determining what corporate skills and new offerings should be developed to grow their businesses. A company may not currently possess the capabilities necessary to satisfy all those needs, but by identifying the ones that cannot yet be satisfied and working toward meeting them, the company can plan the appropriate medium to longer term investment to be able to deliver against those consumer needs. Twenty years ago, Eastman Kodak realised through customer studies that people didn't just want film and photo processing, their underlying need was to capture and enjoy images of daily life. As we know today, Kodak has maintained a strong competency in this area and, where in the 1990s they found themselves facing significant contraction of revenue due to the introduction of digital cameras, they continue to be a dominant force in the imaging value chain.

Lastly - and this is probably the most important - people become accustomed to their problems, often developing workarounds to circumvent a need. In doing this they become oblivious to the needs' existence and as a result, traditional research and marketing approaches will never uncover this problem, which is potentially very valuable if companies are awake to the opportunity. A good example of this is the requirement for cooks over decades to either bend over or raise up the measuring cup to eye level to read the measurements on the side of the cup. The OXO measuring-cup now allows you to look straight down and see the quantity of what you are measuring and is an excellent demonstration of developing a product which is truly human-centred.

The feedback from the Australian marketing community on the lack of innovation in research approaches in combination with the lack of outside-in (or need-finding) focus by companies potentially presents a real issue not only for manufacturing companies, but more importantly for service-based companies that make up 80 per cent of the GDP of the Australian economy.


"User-centred design involves consumers from a very early stage and understands that there are core users and extreme users who are quite often looking for very different experiences..."


Unlike product-based companies, which can (but don't always) invest significant attention and investment upfront into product development prior to manufacture, service-based companies rely more heavily on needing to use a range of service innovations, because the very nature of services means they are intangible. As they are normally consumed over a passage of time across a number of interactions, consumers use these additional cues to judge the quality of the offering when they are consuming the service.

So how do those companies, who wish to develop more compelling products and services utilising user-centred design on their own company's business problems, start?

The first step of the process is to identify who your users are by asking a number of simple 'who' based questions. These include: Who pays for it? Who uses it today? Who told someone else to buy it? Who installs it? Who sells it to the customer? And, who looks after it if it goes wrong?

Next, companies need to spend some time observing their users and ask a lot more questions because you will find out things that consumers would never normally tell you using traditional methods. What patterns do you find from things that keep appearing? What opportunities present themselves? What things really surprised you? What are the things that people want or think they need? What are the things that people find difficult about your product or service or cause them trouble when using it? And finally, what works and can be built upon to make the experience even better?

Too often consumers are asked to pass judgement on products and services that have been developed in isolation from them and as a result quite often they provide a failing grade. User-centred design involves consumers from a very early stage and understands that there are core users and extreme users who are quite often looking for very different experiences. Seeking to understand both sets of needs can provide really rich input for the further improvement of your offer.

A key part of being user-centred is about prototyping your ideas and having users start to show you how they would use them. IDEO uses the term "build to think" to emphasise the value in undertaking prototyping, or doing whatever it takes to communicate the idea to users and allow the developers of new products and services to walk in the footsteps of the end users. Wisely, they say that the value lies in building very rough prototypes. Make them quick, dirty and early and don't be afraid to throw away early prototypes and build new ones because at the end of the day, that's what they are for.

And finally, understand and appreciate the value of a multi-disciplinary team that brings great breadth and depth to solving your business problem. Most companies have industry and company orthodoxies that are hard to see beyond. User-centred design relies on assembling different points of view and people in order to solve your most pressing business issues.

So, if you are up for going on the journey, remember that success will require leadership that provides absolute clarity about which customer problems the firm is dedicated to solving; the ability to assemble deep insights into the unmet needs and wants for your customers; the skill and focus at developing new customer experiences along with new ecosystems and business models to deliver those experiences; and good change management processes and systems to turn unfamiliar business designs into fast-growth businesses that can scale quickly.

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Damian Kernahan is the managing partner of corporate growth consultants, Proto Partners, www.protopartners.com.au.

Intrapreneurship and Open Innovation for Small Business

by Stefan Lindegaard

I have been asked to present my views on how small and medium-sized companies can move to the next level by implementing open innovation and intrapreneurship.

I am still working on the presentation, but below you can see some bullet-points I plan to include in the 3 hour-long session. What do you think? Am I missing something important?

Besides hearing your comments here, it would be great to get out and share this with other companies, organizations and event organizers around the world. Let me know if you would like to discuss these:

The Challenge

• Growing a startup is very much about executing on a great product, idea or technology. However, as the company grows focus tend to shift towards control rather than keeping the visionary thinking and bold approaches that build the company. This must be re-ignited. Understanding open innovation and intrapreneurship can help do this.

All the best people do not work here

• One key reason for Procter & Gamble to initiate open innovation programs was that they learned that for each of their 7,500 R&D people there were 200 people outside the company with equal skills and competences. An ignorant - and arrogant - company would ignore these 1,500,000 million people arguing they do not matter as they do not work for us. P&G did not ignore this. They understood they should connect their own organization with the best and brightest from the outside world. Given the size of smaller companies, this mindset becomes even more important.

People matter more than ideas

• Innovation is not only about finding the right idea or developing a great technology. A company must also be able to identify and develop the right people who can be matched with these ideas at the right time.

Innovation is about more than just products

• Check the Ten Types of Innovation framework developed by Doblin. It is a great tool to broaden people's mind on innovation.

Think in terms of eco-systems

• Today, one company does not compete against another company. Eco-systems compete against other eco-systems. Check this article by Hagel / Seely Brown to learn more: How SAP Seeds Innovation.

Control or contribution?

• Big corporations can split their open innovation efforts on projects in which they are either are in control or just contributes with IPR or other resources. Smaller companies should only get involved in projects where they are in control or where their contribution is important and valued. The project should also fit the overall strategy of the smaller company.

Big corporations can drain a smaller company

• Signs of this include long planning periods, difficulties in identifying and working with the right people and too much time spent on patent lawyers too early in the process. If these tell-tale signs appear, a smaller company need to evaluate whether this will become a drain of valuable resources that could be better spend elsewhere.

Where to look versus how to be found

• Smaller companies need to be more active looking around whereas big corporation can focus more on being found and becoming a preferred partner of choice. Companies can look for projects and partners in their own networks (such as customers, suppliers and partners) or in external networks (such as universities, intermediaries and consultants).

Is the company ready for open innovation?

• Any company must ask themselves why open innovation is relevant to them, how it should be defined to their situation, how it links with the overall strategy and how it can be implemented. Smaller companies must also prepare the organization for a cultural change, develop and implement a networking strategy and train their employees on innovation, stakeholder management and how to work with external partners.

Open innovation is about communication

• Companies must understand the importance of communicating internally as well as externally. New social media tools such as Twitter (search and share information) and LinkedIn (identify the right people, search and share information) must be understood and leveraged.

I am looking forward to your comments.

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Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.

Creating Priceless Value

by Kevin Roberts

This week was a biggie - speaking at HSM World Business Forum at Radio City Music Hall in New York. I was onstage immediately before George Lucas, and as much as I would have loved to stay, I had the week from hell with speeches and meetings over the following three days in Miami, Washington DC, and Chicago.

In the lead up to the event I recently gave a webinar where I gave a preview of what I covered in my presentation, and I answered about 20 questions which poured in from all parts of the world.

In my webinar opening remarks I focused (again!) on Winning Ugly, which has been my mantra at Saatchi & Saatchi since the recession. There are a bunch of ways to win ugly, but one constant in the list is reframing your beliefs about value. With more choice, more connectivity, and less spend, consumer power is reframing the notion of value.

In this time of "new frugality" everyone is wanting more for less. People are evaluating more (71% of Americans shop online before buying a car), trying more, comparing more, and contemplating switching more. Online themselves, and online through others.

Here are the ways consumers are thinking about value; they're saying:

"I'm sorting true value from false economies."
People want smart abundance, not rubbish

"I'm not cutting back on luxuries, I've just redefined what luxuries are."
People still treat themselves, just not in the same way.

"I'm into the challenge of finding creative solutions."
Ingenuity is the new innovation.

Companies must jump-shift their value comparisons.

P&G invites consumers to compare Tide Total Care with the costs of dry cleaning.

Prius invites drivers to enjoy exhilarating motoring while at the same time refreshing the environment.

Tylenol shifted the goal posts in an admirably non-self-serving way: their advice for a headache? Drink a glass of water, wait 20 minutes - and if you still have one then take Tylenol.

Even a private jet company - Flexjet - reframed its private jets from a luxury item to a valuable business tool, from status-oriented cost center to commonsense transport investment.

Each of these examples represents an 'emotional bonus'. They check the rational value boxes but also deliver emotional value by improving your world.

I call this Priceless Value... uplifting life solutions tuned to how people are feeling, living, spending - and sharing.

I'll be talking again about reframing value, and creating priceless value, at Radio City. Now this, for me, is Priceless.


For more with Kevin Roberts, check out our video interview from the World Business Forum.

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

Design Driven Innovation

by Jeffrey Phillips

I was pondering recently why it can be so hard for a large firm to innovate successfully. Too often it seems we are trying to graft an innovation capability or process on top of existing teams and workflows. While these grafted processes can work effectively for a short time, while the white hot focus of management is felt, often these grafted processes wither and die if not constantly renewed and refreshed. Then it hit me. I'd just finished reading and reviewing "Design Driven Innovation" by Roberto Verganti. His thesis is that innovation should be driven, even led, by design. Innovation efforts often feel grafted on because the organization is working as it was designed to.

Many of my larger clients are Fortune 1000 firms that have well defined business teams and processes. After a round of Total Quality Management, Six Sigma and Lean in the 80s and 90s, these processes and workflows are well documented and highly efficient. Add to the fact that many firms have grown without adding headcount, and the processes are maxed out in terms of throughput and efficiency. There's little more work that can be added. Now, attempt to introduce a concept or process that requires change, risk, failure and uncertainty, that seeks to "hit a home run" when all the other processes seek to hit consistent singles and doubles and never make an error (sorry about the baseball analogy). Not only does innovation violate the "designed" process, it adds new work that conflicts with existing standards and norms. Innovation efforts, in most cases, are added to a fully engaged workforce in opposition to existing standards and processes.

So, if many firms have difficulty innovating because of existing expectations and designed processes, is the opposite also true? Do firms that innovate successfully have well designed innovation programs that are part of the fabric of how they work? In general the answer is "yes" with the caveat that every innovator has its own methods and approaches. Apple, for example, innovates from the top down in a very structured process informed by user design and experience. WL Gore, on the other hand, innovates from the bottom up and from specific capabilities or technologies. P&G, as a third example, has shifted from a completely internal R&D organization to one that receives 50% of its ideas from outside. Talk about a significant change of design and process! Each of these firms is innovative, and each has a defined, designed process for innovation success, and each process or design is different.

What's important to realize is that innovation can be designed into your organization, into the processes and expectations of the employees. Rather than "graft" on an innovation process, if your team seeks consistent innovation over time, seek to design in the innovation capability. Your innovation methods and process and how it impacts your organization can and will be unique to your firm. There are no "best practices" yet, and quite possibly there won't be, as innovation means so many different things to so many different firms and people.

Rather than fight the existing systems to innovate, why not consider designing the innovation processes and methods into the structure of how the business works?

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Jeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of "Make us more Innovative", and innovateonpurpose.blogspot.com.

Is Tide Basic an Innovation?

by Hutch Carpenter

Adam Hartung, Managing Partner of Spark Partners, a strategy and transformation consultancy, asked this question on LinkedIn:

"Do you think "Tide Basic," a less-good formulation, is an innovation? Isn't innovation about making things better and cheaper, not just cheaper?"

The genesis of the question is a story in the Wall Street Journal describing why P&G recently rolled out Tide Basic. Tide Basic "lacks some of the cleaning capabilities of the iconic brand - and costs about 20% less." As the article notes, Tide's historic posture is to improve the laundry detergent continuously. It gets better every year. And the price does go up as well. The decision to go down-market didn't come easily.

Much of this is reminiscent of Clayton Christensen's analysis of the steel industry. In that story, low-cost mini mills ultimately led to the demise of the big, integrated steel mills.

Reflecting on that, here's how I answered Adam's question on LinkedIn:

"Conceptually, going simpler on something *could* be an innovation. Clayton Christensen's mini steel mills were the catalyst for disrupting the steel industry in the 1970s and 80s. The innovation was decoupling the low cost, simple steel from the integrated high end. It enabled quality customers wanted at much lower prices.

A lower cost, less featured Tide sounds similar, doesn't it? A difference here is that there's nothing new in the manufacturing process for Tide Basic. Remove the more expensive ingredients, change packaging, sell for less. Nothing wrong with that either. It addresses the needs of a segment of the market. I consider it smart business.

A key difference between Tide Basic and the mini steel mills is that the mini mills recast the economics of the industry. At the low-end initially, then upmarket as well. Tide Basic doesn't recast the economics of the industry. There's still a linear relationship between the ingredients put in the detergent, and the price and performance of the detergent. The mini mills caused a fundamental shift in the pricing of steel.

That was their innovation."


How about you? What do you think?


Image Credit: Wall Street Journal

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Hutch Carpenter is the Director of Marketing at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

Making the Change to "Proudly Found Elsewhere"

Interview - Chris Thoen - P&G

I had the opportunity to interview Chris Thoen, Director Innovation & Knowledge Management at P&G about the challenges of shifting an organization as big as P&G from closed innovation to open innovation, and the P&G Connect + Develop program. Dr. Thoen is a twenty year P&G veteran who started his career as a research scientist in the Fabric & Home Care division and now heads up the Global Open Innovation Office, also known as Connect + Develop.


Here is the text from the interview:

1. When it comes to open innovation, what is the biggest challenge that you see organizations facing?

For P&G specifically, changing the culture was a big challenge. Shifting from inventing everything internally, and owning all the IP to an open culture, with shared risks and rewards was a huge leap. You find that not everyone embraces open innovation at the same speed, or to the same degree. It's a journey, and while P&G has come a long way, there is still a lot to do.


2. What was the biggest barrier P&G had to overcome in the move from closed innovation to open innovation?

It's aligned with that same theme - the internal culture change. P&G has incredibly talented employees - employees who are proud of the work they do. Moving from "only invented at P&G" to "proudly found elsewhere" required a change in mindset. It was important that employees realized that Connect + Develop was not another name for downsizing and outsourcing jobs but instead, a strategy to ensure sustained business growth for the Company. Leveraging open innovation as a way to increase capacity for our internal researchers makes sense. We recognized that we should concentrate on what we do really well and look to partner externally in instances where others can either do better or faster to bring products to market more quickly. And always, always, we have the end in mind...to continue to bring new and improved products to delight consumers.


3. From your experience, what are some of the keys to successfully engaging employees in an open innovation effort?

This is a challenging one, mainly because of the culture change employees will face. When P&G started our journey we didn't have all the answers. But we've learned a lot, and here's a few things I'd share. First and foremost, building rewards and recognition into P&G's career development related to Connect + Develop. Including Connect + Develop in work plans helps to ensure continued adoption of this approach and helps to change the mindset of open innovation as a 'threat' to open innovation as an 'productivity enabler'. Success stories are the best way to highlight the value of open innovation, with increased capacity and capability through collaboration with external innovators and experts. A great example of this is the Sonic toothbrush. P&G was looking at entering sonic toothbrush market. We considered doing it ourselves, but projected 3-5 years before going to market. Instead, we partnered with one of the largest home electric product companies in Japan (cannot name partner due to confidentiality) and went to market in fraction of the time (18 months) and cost. Finally, I'd add that you have to champion the early adopters. Whether it's an individual or a business, you take those who are on-board, passionate, and have embraced open innovation and you make heroes of them to the rest of the business. The more you can publicize success, the more you'll see that others want to be a part of it.


4. Was it difficult to convince partners and suppliers to participate in P&G's open innovation efforts?

Not at all. I think it's important to recognize that this isn't something you communicate like a marketing plan - we don't advertise that we are looking for participants in open innovation. It's a process that begins with networking and building relationships, and grows into productive business transactions that benefit both participants as well as consumers, who get products in market faster at better value. With respect to P&G, the company enjoys a solid reputation and has an internal culture with a purpose and principles to improve consumer lives now and for generations to come. What P&G was not well known for initially was being an open innovation partner. We've worked hard over the past decade to change that perception. We've made great progress and were voted Preferred Innovation Partner this year by marcus evans group (sic), a peer innovation community. But we know we need to do more and we will continue to look for new opportunities to collaborate externally and to become the preferred innovation partner.


5. What are some of the keys to successfully engaging partners and suppliers in an open innovation effort?

Approaching 'partner understanding' in a similar way to consumer understanding. To become the 'partner of choice' requires being outwardly focused to understand partner's needs, concerns, expectations, goals, etc. and finding ways to delight them at the first moment of truth (their initial contact with P&G as a potential partner) and the second moment of truth (during the collaboration). And at the monetary level, ensuring that partnerships are truly a win/win for both sides. We often coach internally and ask the question "Would you sign for either side?" In doing so, we increase the likelihood of repeat partnerships. And we build a solid reputation as a true partner of choice.


6. What skills do you believe that managers need to acquire to succeed in an innovation-led organization?

Adaptability to change, entrepreneurial skills, sensible risk taking behaviors. Being able to identify and remove organizational roadblocks to open innovation. Continual questioning of status quo and looking ahead to find new solutions. Actively working internally to drive culture change, while remaining laser focused externally at consumer needs. At the end of the day, the consumer is still the boss.


7. 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?

More active involvement in real life work settings vs. in the lab. A great example of how we've been working to drive more interaction locally is the Live Well Collaborative with University of Cincinnati. The Collaborative is a non-profit independent structure, with a number of companies and the university, who collaborate on a "fee for service" basis and provide strategic leadership/management. The focus area is Baby Boomer population 50+. Participating companies pose a challenge for a new product/service and the university researchers, professors, and co-op students work against that for a 10 - 14 week period. This give real life business experience, and provides jobs to students and faculty. This is a great example of how university collaboration works really well.


Tell Me More

If you'd like to hear more of what Chris Thoen has to say about the challenges of open innovation, he will be speaking at the Open Innovation Summit, taking place December 2-4, 2009 in Orlando, Florida along with several other open innovation leaders, authors, and consultants. Dr. Thoen's talk is currently titled:

"How To Brand Yourself As A Partner Of Choice And Turn Ideas Into Profits"

September 18, 2009 is the last day for the $400 early bird discount.

Blogging Innovation readers can save an extra $300 by registering using the discount code - NXB458. More than enough to add Workshop B to your innovation experience.

See you there!

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Open Innovation Lessons From P & G

As you start the evolutionary process of adopting open innovation to your organization, always remember that open innovation is just a tool, not a goal. The goal is to grow your company and make a profit. Some companies might also have the goal of changing the world to a better place.

Understand that open innovation is only a piece of an overall innovation strategy. To begin, look for opportunities to develop overall open innovation capabilities out of the pockets of open innovation you may already have in your company in areas such as key partnerships, supply/value chain, and selected employees with the right mindset and toolbox.

In my Leadership+Innovation community on LinkedIn, Chris Thoen, a R&D director at P&G, started a spirited discussion by asking which elements are needed to create an open innovation culture. The community suggested that open innovation requires these elements:

• People who can manage relationships with customers and partners. This requires agile and flexible people who have the "soft" skills of emotional intelligence - fundamental social skills such as self-awareness, self-fulfillment, and empathy - in addition to traditional intelligence skills.


• Willingness to accept that not all the smart people work for your company or even in your department, and a corresponding willingness to find and work with smart people both inside and outside the company.


• Willingness to help employees build the knowledge and understanding of how an idea or technology becomes a profitable business, perhaps by developing a job rotation program that could even engage partners and customers.


• Understanding that failures represent opportunities to learn, and a willingness to reward those efforts and that way of learning. Failure is a fact of life for companies that pursue innovation seriously, and a leader's response has a huge effect on company culture and therefore on future projects.


• Dismiss NIH (Not Invented Here). If we make the best use of internal and external ideas, we will win. We don't need to own everything ourselves and keep it under tight wraps. We should profit from others' use of our innovation process, and we should buy others' intellectual property whenever it advances our own business model.


• Willingness to strive for balance between internal and external R&D. External R&D can create significant value; internal R&D is needed to claim some portion of that value.


• Willingness to be a risk taker rather than being risk averse, while using common sense to balance the risk level.


• Accept that open innovation does raise intellectual property issues. Your legal team can either choose to play offense or defense. Hopefully, they'll adopt a constructive approach that supports progress toward the company's business development goals.


• Understand that open innovation requires open communication. Work around the confidentiality and intellectual property rights issues to create an environment build on trust.


• No need to always be first. Building a better business model is better than getting to market first.

Finally, recognize that it is no longer enough to just be a good project manager, researcher or engineer or leader. As you will learn in this book, open innovation not only requires a different mindset, but also requires new skills that include:

• Networking. Open innovation is all about networking, so the ability to build a networking culture is an essential role of an innovation leader as companies move more toward open innovation.


• X-vision. If you want to create significant innovation, you must be able to work across business functions and with many types of innovation to turn ideas into profitable products, services, or business methods. I call this X-vision. This is actually more of a mindset rather than a skill, but it's extremely important to develop.


• Managing stakeholders. You do not need to have everyone on your side, but you need to generate adequate support to champion your ideas and enough leverage to overcome major hurdles.


• Making an effective elevator pitch. You need to be able to craft compelling messages to the stakeholders you want to influence.

It would be great to hear your comments on this.

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Stefan Lindegaard is a speaker, network facilitator and strategic advisor who focus on the topics of open innovation, intrapreneurship and how to identify and develop the people who drive innovation.