The World is Flat

The world is flat - the playing field is being flattened by technology

GLOBALISATION 3.0:
Globalisation 1.0 - When Columbus set sail, opening trade between the Old World and the New World-until around 1800.
- It shrank the world from a size large to a size medium.
- was about countries and muscles -
Key agent of change/dynamic force of global integration was:
-Countries Globalising - how much brawn -how much muscle, how much horsepower, wind power, later, steam power -your country had
- and how creatively you could deploy it.
Primary questions:
- Where does my country fit into global competition and opportunities?
- How can I go global and collaborate with others through my country?

Globalization 2.0 ( lasted roughly from 1800 to 2000, interrupted)
- This era shrank the world from a size medium to a size small.
Key agent of change, the dynamic force driving global integration:
- Companies Globalising -was multinational companies - spearheaded first by the expansion of the Dutch and English joint-stock companies and the Industrial Revolution.
- 1st first half of this era, global integration was powered by falling transportation costs, thanks to the steam engine and the railroad,
- 2nd half by falling telecommunication costs-thanks to the diffusion of the telegraph, telephones, the PC, satellites, fiber-optic cable, and the early version of the World Wide Web.
- walls started falling all around the world, and integration, and the backlash to it, went to a whole new level.
- But even as the walls fell, there were still a lot of barriers to seamless global integration. (No email or web till post 1992)
Primary Questions:
- How can I go global and collaborate with others through my company?

Globalization 3.0 -around 2000
- shrinking from size small to a size tiny and flattening the playing field at the same time.
Key agents of change:
- software- all sorts of new applications-in conjunction with
- a global fiber-optic network that has made us all next-door neighbors.
- People Globalizing - Individuals must, and can, now ask, Where do I fit into the global competition and opportunities of the day
Primary Questions:
-How can I, on my own, collaborate with others globally?

Globalization 1.0 and 2.0 were driven primarily by European and American individuals and businesses. Even though China actually had the
biggest economy in the world in the eighteenth century, it was Western countries, companies, and explorers who were doing most of the globalizing and shaping of the
system. But going forward, this will be less and less true. Because it is flattening and shrinking the world, Globalization 3.0 is going to be more and more driven not
only by individuals but also by a much more diverse - non-Western, non-white-group of individuals. Individuals from every corner of the flat world are being empowered.
Globalization 3.0 makes it possible for so many more people to plug and play, and you are going to see every color of the human rainbow take part.

Outsourcing:
- Those who get caught in the past and resist change will be forced deeper into commoditization. Those who can create value through leadership, relationships and creativity will transform the industry, as well as strengthen relationships with their existing clients."

- no matter what your profession-doctor, lawyer, architect, accountant-if you are an American, you better be good at the touchy-feely service stuff, because anything that can be digitized can be outsourced to either the smartest or the cheapest producer, or both.-"Everyone has to focus on what exactly is their value-add."

- Services will always be protected - unlike goods they are not traded but produced & consumed in the same spot. You can't export a haircut!

- Even with the outsourcing of some jobs for western world to India, India's growing economy is creating demand for many more western products that they could never before afford. It goes full circle.

- homesourcing (employees working from home) and outsourcing aren't so much competing strategies as they are different manifestations of the same
thing: a relentless push by corporate America to lower costs and increase efficiency

Blogs:
They have given people a chance to stop yelling at their TV and now have a say in the process and speak out - share their perspectives and 'unfiltered' insights.

The 10 Forces that flattened the world
1. Winows up & walls down.
- Fall of Berlin wall heralded a a tippling towards democracy. More economies would be governed from the ground up, by interests & demands of the people.
- Communism was a great system for making people equal - equally poor! - Capitalism makes people unequally rich.
- Windows enabled any indiv to amass, author & diffuse as much info as they wanted & share it with others. Before we thought what one could do with pen & paper now this capability was with all.
- IAYF info at your fingertips empoyered masses.Info asymmetry was quickly becoming a thing of the past. Consider, no need for insurance brokers as info was available..
- The wall was brought down not by the USA crippling the USSR in the cold war arms race alone but throgh windowsallowing indiv download the future.

2. The new age of connectivity - the web.
- Internet was a low cost tool of global connectivity.
- Net vs. Web: net is a network of computers connected by cables. Web sits on top as a network of documents, sounds, vids, info..connected by hyperlinks.
- Dot-com bubble: investors looked at web & concluded that if if everything was to be digitized - data, commerce, books,music, photos - then the demand for info based products would be infinite.
This Lead to an inflated over investment in fiber-optic cables to wire the world. - However adoption was not as expedited as expected.This abundance of fiber drove down the prices of international calls and transporting data.
- The browser: helped make net truly interoperable. It ignored underlying topologies to allow seamless integration on a single protocol. Before this there were propietary corporate networks that were disconnected as they spoke different languages - essentally silos of info locked away.
10 years ago Joe in accounts would get on his PC in the office and try get hold of Sales yearly figures but couldn't as they were on a system his comp couldn't access that system He would try get the shipment info from goodyear but they had a diff system that their system couldn't connect with.Open protocols & XML was created to address this.
- point-&-click functionality meant trhat mere mortals could utilse the technology - you no longer had to communicate in 1s & 0s.
- Overinvestment is not necessarily a bad thing - Gates compared the Internet to the gold rush, the idea being that more money was made selling Levi's, picks, shovels, and hotel rooms to the gold diggers than from digging up gold from the earth.

3. Workflow Software
Work flow platforms are enabling us to do for the service industry what Henry Ford did for manufacturing
- "We are taking apart each task and sending it around to whomever can do it best, and because we are doing it in a virtual environment, people need
not be physically adjacent to each other, and then we are reassembling all the pieces back together at headquarters
- 24/7/365 we are all working around the clock around the planet.

3.b. Standards: - Common protocols - Instead of everyone trying to control the fire hydrant nozzle, they made all the nozzles and hoses the same, creating a
much bigger market that stretched across every neighborhood of the world. Then companies started to compete instead over the quality of the hose, the pump, and the
fire truck.
- Salesforce.com -(increased broadband, Ajax,..) software becomes something you rent rather than something you own. No need to worry about maintenance, upgrades, IT team. It is all managed externally by the service provider. Business solutions & best practices within & between companies can be shared. Newly developed modules can be sold back to salesforce.com - their customers in effect become their R&D and development team.

4. Opensourcing
Why? - IT people tend to be very bright and what everybody to know how bright they are - OS is peer-reviewed science
- Most software development involves a source code repository - it is managed by tools called a CVS ( Concurrent Versioning System) - allows me to connect to the server and pull down the latest version - i can make changes (a patch) when satisfied I can upload this to CVS server and it becomes the latest version

Apache: (The Apache tribe was the last tribe to surrender to the oncoming U.S. government - OS is about defiance, independence - pun: A PAtCHy server,)
IBM was trying to sell its own proprietary Web server, called GO, but it gained only a tiny sliver of the market. Apache proved to be both a better technology and free.
So IBM eventually decided that if it could not beat Apache, it should join Apache
- The world's biggest computer company decided that its engineers could not best the work of an ad hoc open-source collection of geeks, so they threw out their own technology and decided to go with the geeks! - let's invest in it and get rid of the one that we are trying to make on our own, which isn't as good."
- IBM wanted to build differentiated applications on top of Apache and charge money for them.
- Apache people were not interested in payment of cash - they wanted IBM's best engineers to help further develop Apache

There is no future in vanilla for most companies in a flat world. - the commercial future belongs to those who know how to make the richest chocolate sauce, the sweetest, lightest whipped cream, and the juiciest cherries to sit on top, or how to put them all together into a sundae.
Vanilla will be provided free by the OS community.

Also e.g.: RedHat can't sell you Linux per se (thats against OS regulationsCommercial Software:) but they have developed a business offering services around it and customising it for businesses.

Commercial Software: You spend a ton of money up front to develop a software product, and then the marginal cost of producing each one is very small, but if you sell a lot of them, you make back your investment and then plow profits back into developing the next generation.
- 'When you have a security crisis in your [software] system, you don't want to say, 'Where are the guys that work part-time developing this, is there even a number to call?'
- Microsoft has been able to count on the fact that the only thing more expensive than commercial software is free software.
- Few big companies can simply download Linux off the Web and expect it to work for all their tasks. A lot of design and systems engineering needs to go around
it and on top of it to tailor it to a company's specific needs, especially for sophisticated, large-scale, mission-critical operations. - costs as much if not more.

Community Answer: Goldcorp - miningdata competition = "where is the gold?" - 1400 scientists - mathamaticians, physicits, geologists, computer scientist - 1000% increase for a $100,000 prize.

5. Outsourcing Y2K bug fixes:
- Which country hard the greatest abundance of low-paid high skilled IT workers to perform such a tedious job? India
- Arguably, it is harder to get into an IIT than into Harvard or the Massachusetts Institute of Technology
- "India had no resources and no infrastructure," - "It produced people with quality and by quantity. But many of them rotted on the docks of India
like vegetables. Only a relative few could get on ships and get out...."For decades you had to leave India to be a professional. . . Now you can plug into the world from
India."
- India is a developing country with a developed intellectual capability

6. Offshoring
- when a company takes one of its factories that it is operating in Canton, Ohio, and moves the whole factory offshore to Canton, China. There, it
produces the very same product in the very same way, only with cheaper labor, lower taxes.
Every morning in Africa, a gazelle wakes up.
It knows it must run faster than the fastest lion or it will be killed.
Every morning a lion wakes up.
It knows it must outrun the slowest gazelle or it will starve to death.
It doesn't matter whether you are a lion or a gazelle.
When the sun comes up, you better start running.
- in thirty years we will have gone from "sold in China" to "made in China" to "designed in China" to "dreamt up in China"
- Low Chinese Prices are beneficial:
_Morgan Stanley estimating that since the mid-1990s alone, cheap imports from China have saved U.S. consumers roughly $600 billion and have saved U.S.
manufacturers untold billions in cheaper parts for their products. This savings, in turn, Fortune noted, has helped the Federal Reserve to hold down interest rates longer,
giving more Americans a chance to buy homes or refinance the ones they have, and giving businesses more capital to invest in new innovations
_If General Motors builds a factory offshore in Shanghai, it also ends up creating jobs in America by exporting a lot of goods and services to its own factory
in China and benefiting from lower parts costs in China for its factories in America.
- China will never be truly flat until it gets over that huge speed bump called "political reform."

7. Supply Chaining
Global supply chains that ddraw parts from all over the world is essential - complex
There are 2 challenges:
a. Global Optimization:
It doesn't matter if you can get one part cheaper in one place. The key is that the overall cost including delivery and setup is cheaper - e.g. buying groceries locally for an extra 1.50 or taking the bus for 2.00 to save that 1.50
- Need to mange all these factors - as transporatation manager I want to get those parts delivered at lowest cost , however if I am production manager I want to get those parts via the fastest and most reliable truck company

b. Coordinating (disruption prone) supply with (difficult-to-predict) demand:
- Don't want to purchase too many of one type of part or sweater - Too many: Need to discount - Too few: Missed opportunities not only day but for life
- Postponement is the strategy of reacting when stock is low and demand is high. However, need sophisticated IT processes to manage this e.g. Zara
- Dell.com has a customer for each and every product it develops - never stuck with products it can't sell
- Competition is more intense than ever - A smart and fast global supply chain becomes a competitive differentiator

- Walmart - RFID tags - quicker than barcodes (collective scan) - supply chain accounts for 5 - 10% of savings - gives info on products within size, amount, source - can splice & dice: what sells best on thurs evenings, what sells best during during hurricanes

8. Insourcing:
-Bringing an other companies core competencies that you don't yourself possess in-house to form part of the value-chain
e.g. UPS - synchronizing global supply chains for companies large and small
When our grandfathers owned shops, inventory was what was in the back room. Now it is a box two hours away on a package car, or it might be hundreds
more crossing the country by rail or jet

Toshiba had negative name as slow handling repairs: -If you own a Toshiba laptop and it breaks and you call Toshiba to have it repaired, Toshiba will tell you to drop it
off at a UPS store and have it shipped it to Toshiba, and it will get repaired and then be shipped back to you. But here's what they don't tell you: UPS doesn't just
pick up and deliver your Toshiba laptop. UPS actually repairs the computer in its own UPS-run workshop.
Toshiba came to UPS and asked it to design a better system. UPS said, "Look, instead of us picking up the machine from your
customers, bringing it to our hub, then flying it from our hub to your repair facility and then flying it back to our hub and then from our hub to your customer's house,
let's cut out all the middle steps. We, UPS, will pick it up, repair it ourselves, and send it right back to your customer.
- complaints went down dramatically.


9. Informing:
Search Engines for the masses - Never before in the history of the planet have so many people-on their own-had the ability to find so much information about so many things and about so many other people.
- It is a total equalizer. - If someone has broadband, dial-up, or access to an Internet cafe, whether a kid in Cambodia, the university professor,
or me who runs this search engine, all have the same basic access to overall research information that anyone has.
- It is the antithesis of being told or taught or kept in the dark (Info. Asymmetry). It is about self-empowerment; it is empowering individuals to do what they think best with the information they want.
- "Though Google is like God - God is wireless, God is everywhere, and God sees everything. If you have any questions in the world, you ask Google."

10. The Steroids:
Digital, Mobile, Virtual, ..everything


Complementary Godds: there are goods that are complementary-whereby good A is a lot more valuable if you also have good B.
Its only good to have pencils because we have paper, its only good to have an eraser because we have pencils - individually they are not too valuable. We got a better quality of one and better quality of the other, your productivity improved. - This is known as the simultaneous improvement of complementary goods

Stepping onto the playing field LEGACY FREE
- meaning that many of them were so far behind they can leap right into the new technologies without having to worry about all the sunken costs of old systems. It
means that they can move very fast to adopt new, state-of-the-art technologies, which is why there are already more cell phones in use in China today than there are people
in the United States. Many Chinese just skipped over the landline phase..-went from NO phones to cell phones

Reverse Auctions companies bid down against each other rather than bid up against each other. They bid for contracts on everything from toilet paper for the Boeing factories to nuts and bolts-the off-the-shelf commodity parts-for Boeing's supply chain.

IT revolution the business press has been touting for the last twenty years? Sorry, but that was only the prologue. The last twenty years were just
about forging, sharpening, and distributing all the new tools with which to collaborate and connect. Now the real IT revolution is about to begin, as all the
complementarities between these tools start to really work together to level the playing field. The last twenty-five years in technology, said Fiorina, then the CEO of HP, have been justthe warm-up act Now we are going into the main event, she said, "and by the main event, I mean an era in which technology will literally transform every aspect
of business, every aspect of life and every aspect of society."

Vertical versus Hrizontal - moving from a vertical (command and control) world to a much more horizontal (connect and collaborate) flat world.

Red Ocean versus Blue Ocean Strategies - Creating New Market Spaces

Rather than competing within the confines of the existing industry or trying to steal customers from rivals (Bloody or Red Ocean Strategy) in the HBR of October 2004 W. Chan Kim and Renée Mauborgne suggest Blue Ocean Strategy: developing uncontested market space that makes the competition irrelevant.

According to Kim and Mauborgne, competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space.(Disruptive innovations)
Of course competition matters. But by focusing on competition and "competitive advantage", according to Kim and Mauborgne, scholars, companies, and consultants have ignored two very important - and far more lucrative - aspects of strategy:
- 1. Find and develop blue oceans, and
- 2. Exploit and protect blue oceans. These challenges are very different from those to which strategists have devoted most of their attention.
In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.

There are two ways to create blue oceans:
1. Launch completely new industries, as eBay did with online auctions.
2. Created from within a red ocean, when a company expands the boundaries of an existing industry.

Certainly Kim and Mauborge deserve credits for having made the point of the over-focus on competitive advantage and also for their beautiful metaphor of the two types of oceans. Hopefully, the authors will provide more specific tools to find, create, develop, exploit and protect blue oceans in their forthcoming book (2005).

They define red oceans as all industries in existence today, where industry boundaries are defined and accepted, and the competitive rules are well understood. In red ocean industries, the authors contend that companies attempt to outperform their rivals in order to grab ever greater share. This competition turns products into commodities and pricing takes a hit. The water gets increasingly red from price wars and the lack of true innovation.

The authors contrast red oceans with blue oceans, or those industries that don't exist yet, often in an unknown market segment where demand is created rather than battled over.

Interpersonal Communication - When Delivering a Report

When delivering effective reports for clients its important to keep them as concise and clear as possible. Here are some tips for writing in my experience:

- Write for the reader
Put yourself in the readers shoes as you write. If you were him, what information and angle is important to you.

- Use the CASED methodology
Critically examine the alternative to your suggestion
Analogy or Example to help in understanding
Support your suggestion with emperical evidence, charts and graphs. Don't overkill though.
Executive summarys should be provided at the beginning.
Diagnos based on proven frameworks and practices.

Value-based pricing

Working on my thesis now I'm trying to find the best price for for a new software product. Traditional pricing has been based on the cost of production plus all expenses to get it to the customer. However, there may be a better approach to making the customer buy..

Value-based pricing is a method of pricing products in which companies first try to determine how much the products are worth to their customers. The goal is to avoid setting prices that are either too high for customers or lower than they would be willing to pay if they knew what kind of benefits they could get by using a product.

For example, one pharmaceutical maker priced a new antiulcer drug, but not by adding up the costs of developing and manufacturing the medication and tacking on the amount of profit it wanted to make.

Instead, the company used value-based pricing techniques to justify a higher price than it might otherwise have been able to get from medical insurers. Its weapon: studies that showed the new drug could help patients avoid expensive surgery, which in turn would lower costs for the insurance companies.

Six key ways to unleash markets through Disruptive Innovation

http://hbswk.hbs.edu/item/3374.html

1. Disruptive innovations spur growth.
Companies have two basic options when they seek to build new-growth businesses. They can try to take an existing market from an entrenched competitor with sustaining innovations. Or they can try to take on a competitor with disruptive innovations that either create new markets or take root among an incumbent's worst customers. Our research overwhelmingly suggests that companies should seek out growth based on disruption.

Sustaining innovations, whether they involve incremental refinements or radical breakthroughs, improve the performance of established products and services along the dimensions that mainstream customers in major markets historically have valued. Examples: a microprocessor that enables personal computers to operate faster and a battery that lets laptop computers operate longer.

All Innovative ideas start out as half-baked propositions.
— Clayton M. Christensen, Michael E. Raynor,
and Scott D. Anthony

Companies march along a performance trajectory by introducing successive sustaining innovations—first to remain competitive in the short term. But, as noted in The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997), firms innovate faster than our lives change to adopt those innovations, creating opportunities for disruptive innovations. Although sustaining innovations move firms along the traditional performance trajectory, disruptive ones establish an entirely new performance trajectory.

Disruptive innovations often initially result in worse performance compared with established products and services in mainstream markets. But disruptive innovations have other benefits. They are often cheaper, simpler, smaller, and more convenient to use.

Consider the small off-road motorcycles introduced by Honda in the 1960s, Apple's first personal computer, and Intuit's QuickBooks accounting software. These innovations all initially underperformed the mainstream offerings. But they brought a different value proposition to a new market context that did not need all of the raw performance offered by the incumbent. They all created massive growth; to flip Joseph Schumpeter's famous phrase, creative destruction, on its head, this is creative creation. After taking root in a simple, undemanding application, disruptive innovations inexorably get better until they change the game, relegating previously dominant firms to the sidelines in often stunning fashion.

Incumbents almost always win battles of sustaining innovations. Their superior resources and well-honed processes are almost insurmountable strengths. Incumbents, however, almost always lose battles where the attacker has a legitimate disruptive innovation. To create a new-growth business, companies—established incumbents and start-ups alike—must be on the right side of the disruptive process by launching their own disruptive attacks.

2. Disruptive businesses either create new markets or take the low end of an established market.
There are two distinct types of disruptive innovations. The first type creates a new market by targeting nonconsumers, the second competes in the low end of an established market.

In a new-market disruption, attackers take root in a new "plane" of competition or a new context of use outside of an existing market. Consumers historically locked out of a market because they lacked the skills or wealth welcome a relatively simple product that allows them to get done what they had always wanted to get done. These markets typically start out small and ill defined. They don't meet the growth needs of large companies. And the incumbent feels no pain at first. Because it creates new consumption, the disruptor's growth doesn't affect the incumbent's core business. But as the innovation improves, it begins to pull customers away from the incumbent. And the incumbent doesn't have the ability to play in this new game.

Managers must be patient for growth but impatient for profitability.
— Clayton M. Christensen, Michael E. Raynor,
Scott D. Anthony

Transistors were a disruptive innovation. Mainstream suppliers of tabletop radios, which were made with vacuum tubes, couldn't figure out how to use transistors because they couldn't initially handle the power requirements of these components. Then in 1955, Sony introduced the pocket radio. It was a static-laced product with horrible fidelity. But it enabled teenagers to do something that they couldn't before—listen to rock'n'roll out of their parents' earshot. Had Sony targeted consumers in established markets, the pocket radio would have bombed. But for teenagers, the alternative to a Sony pocket radio was no radio at all. By competing against nonconsumption, Sony set a very low technical hurdle for itself: The product just had to be better than nothing in order to find delighted consumers.

The second type of disruptive innovation takes root among an incumbent's worst customers. These low-end disruptions do not create new markets, but they can create new growth. The disruption of integrated steel mills by steel minimills demonstrates how low-end disruptors harness what we call asymmetries of motivation.

Minimills first took hold in the steel industry in the mid-1960s. They were very efficient. They had a 20 percent cost advantage over integrated mills. But the quality of the steel they produced was inferior. The rebar market at the bottom rung of the industry (rebar is small steel bars made from scrap and used to create reinforced concrete) was the only market that would accept the minimills' steel.

As the minimills entered the rebar market, the integrated mills were happy to exit it. Their gross margins in the rebar business were a mere 7 percent, and rebar accounted for only 4 percent of the industry's tonnage. So the integrated mills decided to focus on higher-profit steel products. The minimills made boatloads of money until they finally drove the last of the integrated mills out of the market—and then the price of rebar dropped 20 percent, because rebar had essentially become a commodity market. The minimills' reward for victory was that none of them could make money.

To make attractive money again, the minimills had to figure out how to make better-quality steel in larger shapes—not only angle iron but also thicker bars and rods. Profit margins in this market tier were 12 percent, almost double those of the rebar market; the overall market was also twice as large. So the minimills invested in equipment to make the larger pieces and worked to improve the quality and consistency of their steel. As the minimills began making inroads with better and bigger steel, the integrated mills were happy to exit this market tier to concentrate on more profitable products. When the last integrated mill left the market, the price of angle iron collapsed. Once again, the minimills had to move up to the next tier of the industry in order to survive. And so on.

At each stage of the minimills' climb up-market, an asymmetry of motivation was at work. For the minimills, the need to enter a more profitable market provided the motivation to solve the technological hurdles preventing them from producing higher-quality steel. The integrated mills were happy to leave these markets because the lower tiers in their product mix were always less profitable than products targeting higher-end customers. Eventually, of course, the integrated mills ran out of markets to flee to.

3. Disruptive opportunities require a separate business-planning process.
All innovative ideas start out as half-baked propositions. They then go through a shaping process as they wind their way through the organization to reach senior management. When firms have a single process for all the various forms of innovation, what comes out the other end of the process looks like what has been approved in the past, and it all looks like sustaining innovations.

Consider IBM's efforts to introduce voice-recognition software. Early iterations of IBM's ViaVoice software package featured IBM's "ideal" customer on the front: an administrative assistant sitting in front of her computer, speaking into a headset. It is easy to see why IBM targeted such customers. They constituted a large, obvious market, well aligned with IBM's needs and capabilities. But think about IBM's value proposition to this woman. She types 80 words a minute and almost never makes a mistake. IBM was telling her, "Why don't you change your behavior and use a system that gives you lower accuracy and slower speeds. We promise future releases will get better." The only way to attract great typists would be for voice recognition to be faster and more accurate than typing. This is a very high technical hurdle.

Where has voice-recognition technology begun to take off? Kids love the ability to tell their animated toys to "stop" or "go." "Press or say one" menu commands are another obvious application. In these contexts, people are delighted with a crummy voice-recognition product. Another good market for the technology may be all those executives you see standing in airport lines, trying to punch messages into their BlackBerries. Their fingers are too big to enable accurate typing—they'd be more than happy with a voice-recognition algorithm that's only 80% accurate.

Not surprisingly, disruptive ideas stand a small chance of ever seeing the light of day when they are evaluated with the screens and lenses a company uses to identify and shape sustaining innovations. Companies frustrated by an inability to create new growth shouldn't conclude that they aren't generating enough good ideas. The problem doesn't lie in their creativity; it lies in their processes.

Only by creating a parallel process for developing and shaping disruptive ideas—one that acknowledges their distinctive features—can companies successfully launch disruption after disruption. Such a process relies more on pattern recognition than on data-driven market analysis. After all, markets that do not exist cannot be analyzed. Even when numbers are available, they are never clear.

An intuitive process can still be rigorous if managers use the right tools. For example, discovery-driven planning lets you create a plan to test assumptions; aggregate project planning helps you allocate resources between sustaining and disruptive opportunities; the "schools of experience" theory informs hiring decisions.

4. Don't try to change your customers—help them.
Faulty market segmentation schemes help to explain the stunningly high rate of failure of new-product development. Most companies define markets in terms of product categories and demographics. We just don't live our lives in product categories or in demographics. When companies segment markets this way they often fail to connect with their customers.

How do we live our lives? During the course of the day, problems arise, jobs we need to get done. We look around to hire products to get those jobs done. Products that successfully match the circumstances we find ourselves in end up being the real "killer applications." They make it easier for consumers to do something they were already trying to accomplish.

Some manufacturers pushed digital cameras based on the value proposition that they made it easy to edit out the red eyes from all your images and create an online album of your best photos. Research shows, however, that 98 percent of all photos get looked at only once. Only the most conscientious of us prioritized editing images or creating albums. Where digital camera makers found success was in marketing their products to consumers who used to order double prints of their photos and mail them to relatives. The digital technology enables consumers to use the Internet to do more easily what they already wanted to do.

A business plan predicated upon asking customers to adopt new priorities and behave differently from how they have in the past is an uphill death march through knee-deep mud. Instead of designing products and services that dictate consumers' behavior, let the tasks people are trying to get done inform your design.

5. Integrate across whatever is not good enough.
One critical decision firms face when creating an innovation-driven growth business is determining its optimal scope. Specifically, which activities need to be managed internally and which can be safely outsourced?

The answer often is driven by the fad of the day. During the 1960s, everyone thought IBM's integration was an unassailable point of competitive advantage. Because IBM controlled such a wide swath of the industry's value chain, it could make better products than anybody else. So companies copied IBM and tried to integrate. In the 1990s, everyone thought that Cisco's disintegrated business model that made extensive use of outsourcing was an unassailable point of competitive advantage. So companies jumped on this new bandwagon and sought to disintegrate.

The critical question is: What are the circumstances in which my firm should be integrated and what are the circumstances in which my firm can be a specialist? Integration provides advantages whenever a product is not good enough to meet customer needs. Proprietary, interdependent architectures allow companies to run multiple experiments, pushing the frontier of what is possible. Engineers can reconfigure their systems to wring the best performance possible out of the available technology.

Think about the computer industry. In its early days, you simply couldn't exist as a specialist provider. There were too many unpredictable interdependencies across every interface in the first mainframes. The manufacturing process depended on the design of the computer and vice versa. The design of the operating system affected the design of the logic circuitry. IBM had to be integrated across the entire value chain to produce a mainframe that came close to meeting its customers' needs.

By contrast, the modular architectures that characterize disintegration always sacrifice raw performance. Stitching together a system with partner companies reduces the degrees of design freedom engineers have to optimize the entire system. But modular architectures have other benefits. Companies can customize their products by upgrading individual subsystems without having to redesign an entire product. They can mix and match components from best-of-breed suppliers to respond conveniently to individual customers' needs.

But even in a modular architecture, successful companies still are integrated—just in a different place. Consider the computer industry in the 1990s. The computer's basic performance was more than good enough. What did customers want instead? They wanted lower prices and a computer customized for their needs. Because the product's functionality was more than good enough, companies like Dell could outsource the subsystems from which its machines were assembled. What was not good enough? The interface with the customer. By directly interacting with customers, Dell could ensure it delivered what customers wanted—convenience and customization. Value flowed to Dell and to the manufacturers of important subsystems that themselves were not good enough, like Microsoft and Intel.

In short, companies must be integrated across whatever interface drives performance along the dimension that customers value. In an industry's early days, integration typically needs to occur across interfaces that drive raw performance—for example, design and assembly. Once a product's basic performance is more than good enough, competition forces firms to compete on convenience or customization. In these situations, specialist firms emerge and the necessary locus of integration typically shifts to the interface with the customer.

6. Be patient for growth but impatient for profitability.
Managers inside new-growth businesses often feel tremendous pressure to quickly ramp up sales volume. But disruptive businesses can't get big very fast. The only way to make them grow quickly is to cram them into large, obvious markets. In established markets, customers don't care about the disruptive innovation's strengths. They only care about its weaknesses. This is a recipe for disaster, and one reason why company-backed disruptive ventures can have a leg up. Venture capitalists have become increasingly impatient for businesses to get huge. As long as their core businesses are growing healthily, companies will find it easier to wait for the disruptive businesses to find a foothold market and slowly build commercial mass.

Managers must be patient for growth but impatient for profitability. When you are willing to put up with a lot of losses before a disruptive business turns profitable, that means you are trying to lay the foundation for a huge new business. Insisting on early profitability pushes the new disruptive business to find the markets where its unique capabilities will be uniquely valued. Forced to keep its fixed costs low, the new business can serve small customers who would not meet the needs of a high fixed cost structure.

Managers in large companies who read The Innovator's Dilemma may have finished the book thinking they're destined to fail, no matter what they do. We hope to shift their sentiment from despair to hope. If managers understand the theories of innovation, they have the ability to create new-growth businesses again and again.

Clay Christensen and Disruptive Innovation

Here are 5 tips from Clay Christensen professor at HBS and author of The Innovator’s Dilemma and, The Innovator’s Solution.

1) The most ideal market segment is the one that isn’t being served.

When the only other option is nothing, by default your product is better. So strive to find that product and market.

Solar panels cannot seem to find their place in the United States; the power they generate is insufficient and the technology is cumbersome. However, in Mongolia, solar panels are sold everywhere for powering TV sets. The reason the market is better in Mongolia is because the alternative to solar power is no power; there is no competition with a better form of energy.

Seems like a no-brainer concept, but a lot of companies aren’t catching on. In 1979 all the major electronics companies were trying to develop their vacuum tubes for high-end tabletop radios, floor-standing TVs, etc. Meanwhile, Sony realized that their technology wasn’t as good as the competition’s but it was good enough for teenagers who couldn’t afford to buy the high-end products. Sony sold thousands of Walkman portable music players because the alternative to poor quality music was no music.

The lesson is to figure out which markets are not being served because its easier to compete against no competition. This somewhat segues into the next point:

2) Launch the product that is good enough.

If a product will suffice for the market, do not spend millions of dollars in R&D refining it or trying to improve it for the high-end. Just launch it.

Kodak was trying to find a way to replace the traditional glass lens with a plastic one. Though they had a decent plastic frame, it didn’t produce the professional quality pictures they had wanted. For five years Kodak kept working on a way to improve the plastic lens but had few advances. Finally they gave up, changed the market and decided to launch the FunSaver disposable camera. When the alternative to fairly decent pictures of Disneyland is no pictures of Disneyland, everyone was grateful to purchase the FunSaver.

This is entirely speculation, but I think part of the concern Kodak had with launching an inferior product was the detriment to the brand. If done correctly though, I think that there is a way around it. The Kodak Funsaver and Mini Cooper (though not officially BMW, is still associated) are good examples of selling a lower-end product without harming the brand.

The big question is how to apply this lesson to our every day lives? What exactly is “good enough” and how do we know when the R&D team has reached that point? How many features suffice and what development will only result in marginal returns? One way to figure that out is by internalizing the next lesson:

3) Understand the job and you will understand the market

If one can figure out why someone is employing the product/service, then one can better design and market the product. This might have been the most adamant lesson of the day, and it is not as obvious as it seems.

Clay uses McDonalds Milkshakes to explain his lesson. McDonalds wanted to increase milkshake sales, so it brought in consultants to observe how the shakes were being used. They noticed that they were purchased for two distinct jobs. First, commuters were buying them for the long drive to the office. It was better than breakfast sandwiches, bagels, fruit and candy bars because it was cleaner, easy to eat, entertaining, took a long time to drink, and kept the stomach full until lunch. The second milkshake job was for parents looking to buy a child a treat for dinner- the problem was that it took so long for the child to drink that it often tried the parent’s patience and was eventually discarded half full by a stressed-out parent. Because there are two distinct jobs that require different characteristic shakes, there is no one-size-fits-all solution to optimizing the milkshake.

A nice side effect of understanding the job is that it changes the market for that product. The competition for morning McShakes is not just the milkshake category. It’s the entire morning commute job: breakfast sandwiches, bagels, fruit, candy bars and boredom.

4) Disruptive companies can enter all industries

Assuming the trend that all companies try to move up into selling higher-end products where margins are higher, there is always room for companies to enter in the lower-end market where the more established companies care less.

This trend can be seen in several industries including steel, automobile, animation, computers, digital cameras, airlines, healthcare and several others. Take retailing as an example. Department stores such as Macy’s originally sold hard goods (paint, tools) and soft goods (shoes, clothes), where the highest margins were. When Wal-Mart and other mass discount stores came into the industry, they sold the lower-end hard goods. Meanwhile, the department stores were willing to give up the lower-end products and focus on the more profitable soft goods. Slowly but surely, the mass discount stores started selling more soft goods and eating into the department stores’ space. So what is coming in below mass discount stores? Perhaps e-commerce retailers will be the next phase of the retail industry’s evolution.

This provides a good framework for thinking about how industries are changing and what to expect for the future. It also gives a strong warning to think twice before exiting a product segment and entering a new one. It certainly is not a bad idea to market the more profitable product, but keep an eye out for the evolution and figure out where you fit in.

5) Outsourcing can be dangerous, so do it with care

Be careful when outsourcing functions of the company; if one goes overboard he or she might outsource the value of their company.

Computer manufacturers are notorious about over-sourcing, but it could easily happen to any company. Well-established, vertically integrated companies are always seeking to improve stock price by raising revenues or decreasing costs, or decreasing assets. Ways to decrease costs and assets is by outsourcing work, which will close down factories, and lighten up salaries and benefits. True story of one computer manufacturer: what began with outsourcing chip making and board manufacturing, continued to design and supply. Each time the outsourcee told the computer company, “its not your core competency to do this, let me do it for cheaper.” Meanwhile, revenues stayed the same, while the assets and costs decreased and stock price improved; it was in the interest of the stockholders to outsource. Eventually the company had nothing left but its brand. And then the outsourcee went directly to Best Buy, and said, “forget about that computer manufacturer, would you like us to make you ‘Best Buy’ branded computers?”

The way to get around the dilemma above is to own the outsourcee. If that is not possible, consider this: core competency is not the way to determine what to outsource. Instead, one should determine where will value be in the future (which is where the company will need to make core in the future) and internalize that job.

Cannibalisation

No, its not when a tribesman eats a clown in the jungle and asks does this taste funny to you..well it is, but not in this case.

In this case its a situation where a new brand gains sales at the expense of the introduction of another of the company’s brands. For example when Coca Cola introduced Vanilla Cola. The sales generated from their new offering takes away from the sales of their orinal offering, regular coke.
Therefore, the estimated profit generated from the new product must be reduced by the earnings on the lost sales.

Its not what you know..

In todays information society, those who are best informed will lead the pack. Unlike only a few decades earlier anyone can gain access to any public information. No longer is it limited to a select elite.
This has created a parigm shift. No longer should there be a need to learn off facts and stories and dates, as was forced upon us during school. Using the internet and with todays hyper speeds we can have the knowledge infront of us as fast if not faster than if we were to regurrgetate it from memory.
It has now become a case of Not what we know, but what ways we know how to find what!

So on that point here are some tips for using Google more effectively:

synonyms ~house searches for home and all its synonyms (e.g. Home, residence, lodging,..)

numeration 2000..2006 searches for the range between 2000 and 2006 (e.g 2000, 2001,2002,2003,2004,2005,2006)

wildcard "You'll * me at the *" searches using * as the wilcard

The Law of Diminishing (Marginal) Returns

I'm sure you have heard of it, and even know what it is but never associated it with an economic law...
It is a concept which describes the decrease in total production when varying the quantity of one productive factor while holding the remaining factors constant.

It states that for every additional unit of one of the factors of production (usually land, labor, or capital) employed to produce goods or services, the output generated by each additional unit will eventually fall.

To illustrate with an example, I am an apple producer that has seen that as one man I can pick 100 apples a day. By hiring an additional worker, I find that the two of us can pick 200 apples a day. However, after hiring a second worker, I notice that the three of us can only pick 250 a day. Eventually each additional increment pays off less than previous ones.

Another similar law is trhat of Diminishing (Marginal) Utility:
In layman terms, as an extra unit of a commodity is consumed by an individual, the satisfaction gained from each additional unit will fall. For example, if I like apples, every time I eat an apple I will derive some pleasure form eating one. However, after 20 apples, the amount of pleasure I will enjoy in eating my 21st apple will be less then when I ate the first one.

Innovation - The Utility Buyer Map

As we saw from the Motorola example: A new product has to offer customers exceptional utility at an attractive price, and the comany must be able to deliver it at a tidy profit.

But how do managers identify the commercial readiness and potential of a new idea?

Three tools aim to help managers answer these questions:
1. The Buyer Utility Map - aims to indicate the liklihood that a customer will be attracted to the idea.
2. The Price Corridor of the Mass - aims to identify what price will unlock the greatest number of customers.
3. The Business Model guide - offers a framework to ascertain whether and how a company can profitably deliver the new idea at the targeted price.

Furthermore, many innovations have to overcome other Adoption Hurdles:
-strong resistance from stakeholders
-directors fear of moving out of comfortzone
-...

The Utility Buyer Map
The managers at Motorola fell into the common trap: they reveled in the bells and whistles of their new technology.
Succesful innovators rely on the the product's utility.
How a product is developed becomes more a function of its utility to customers
and
less a function of its technical possibilities.




The Six Stages of the buyer experience cycle (x-axis)
A customer experience can usually be broken down into a cycle of six distinct stages, from purchase to disposal. Each stage encompasses a variety of specific experiences. E.g. Purchasing includes the experiences of browsing amazon.com as well as the experience of pushing a physical shopping cart through Tescos.
In order to guage the quality of the buyer's experience at each stage:
A customer's product experience passes through six stages. To help companies assess the quality of a buyer's total experience, their are key questions for each stage. Together they uncover the full picture of the experience cycle.




The Six Utility Lever (y-axis)
The ways in which companies unlock utility for their customers. The most common lever used is customer productivity - helping customers do things faster, better or in easier ways. E.g. , the financial company Bloomberg makes traders more efficent by offering online analytics that quickly analyses and compare the raw information it delivers.

By placing a new product on one of the 36 spaces of the Buyer Utility map, one can quickly see if/how the new idea creates a different utility proposition from existing products.

New utility lever at the same stage:
Starbucks - revolutionised the office-workers' coffee break traditionally coffee in delis or fast-food places , competitors offered fast + cheap coffee - in terms of the map those competitors focused on delivering productivity in the purchasing experience.
Starbucks however moved into a new space entirely, by est. chic coffee bars with an exotic mix of brews, the company injected fun and cachet into the coffee purchasing experience. They inovvated in the fun & image/purchase space.

Same utility lever at a new stage:
Innovation through extending a familiarity utility to differnt parts of the customers' experience.
Michael Dell did just this in the computer business. Manufacturers used to compete by offering faster computers with more features and software. In terms of the map this was productivity in the use of their machines. Dell extended the same utility to the delivery experience. By bypassing dealers, Dell delivers PCs tailored to customers' needs faster than any other manufacturer. Aswell as the costs saved by removing this link in the value chain.

New utility at a a new stage:
Something completely new, e.g. Alto, a disposable fluorescent bulb manufacturered by Phillips. Most bulb manufacturers competed to offer customers more productivity in use, they did not pay attention to the fact that the bulbs had to be carried off to a special dump because of their harmful mercury content. By creating a bulb that could be disposed of environmentally friendally they moved into a whole new space. Env. friendliness in disposal. In its first year alone it poached 25% of the US market while enjoying supperior margins.

Beyond highlighting the difference between ideas that are genuine innovations and those that are essentially revisions of existing offerings, the buyer utility map reminds one just how many unexplored innovation possibilities there are.

Example of an innovative company that created exceptional utility:
Charles Schwab was a discount broker.Schwab's first innovation was to make customers feel safe trading over the phone and later online. At the time when most brokers were competing on price, Schwab recognised that customers were actually more concerned about the safe executions of their trades. By providing instantaneous computer confirmation the perceived risk is eliminated.
Schwab then went on to make purchasing more convenient. Most discount brokers were only open during normal office hours when most of their customers weren't free. Schwab offered 24hr 7 day a week service and a Schwab one cash management a/c avoiding the inconvenient bank hours.
The next innovation came in the simplicity and maintenance space. It saw how difficult it was for customers to track and manage their mutual fund investments. Customers would typically receive statements from each of the fund companies they dealt with. They would be burdened by sticking it all together to get a better picture of performance. Schwab launched One Source a consolodated statement of all mutual investments purchased through Schwab.
Whether or not Schwab continus to lead will be dependent in great part on their ability to sniff out new utility spaces before competitors do.

On what spaces does your company lie? Where could they move to?

Innovation - A brief example of a don't

In 1998 Motorola rolled out the 'Iridium', this new mobile phone, as the company declared, was to revolutionise providing un-interrupted wireless communication anywhere in the world regardless of terrain or country.

However, Motorola had got it wrong. It was a complete flop. In its rush to emrace a new technology, they had over looked its many drawbacks: heavy, needed an array of attachments, couldn't be used in a car or indoors - exactly where jet-setting executives needed it.

At $3,000 a pop, users couldn't see the compelling reason to switch from their current $150 handsets.

As the tale illustrates, it hapens to the best of us. Sometimes a new technology is rushed to market too soon or in the wrong place or at the wrong price.