Archive for the ‘innovation’ Category

Don’t Remove Every Other Lightbulb

Tuesday, March 16th, 2010

In the age-old debate between efficiency and effectiveness it is worth reflecting on the most admired companies like Apple or Google. Are they efficiency leaders (cost optimizers) or effectiveness leaders (innovators). Efficiency helps us optimize resources (cut costs) assuming we are already producing the business impact we want. Just want to do it cheaper. Effectiveness is questioning the very essence of our assumptions about our markets, channels, products and processes.

I’ll always remember a discussion with an advisor from the late Bear Sterns. He mused that the “efficient” investor tries to optimize trading costs from 14.99 to 9.99 per trade and averages 5-7% of return a year. While the “effective” investor has the right investment strategy that requires advisors and may have trading costs that are much higher but overall produces many times the returns.

My favorite business example is in working capital. “Efficient” companies try to reduce accounts receivables through better collections, credit terms and more aggressive “customer care”. An effective strategy would be to look at R&D, order problems, shipping issues that cause the customer to withhold payments and ultimately improve cash flow for the firm. Few get this: effectiveness fixes root cause issues that impact your ultimate outcome across the entire business. Efficiency is always suboptimal and impacts one aspect of the business. Efficiency asks how you can make your products at lower costs (HOW). Effectiveness asks what products your market needs (WHAT).

Someone with the personal outcome of creating a nest egg has similar choices. The personal dilemma is between spending less (efficiency) or finding a job that pays more (effectiveness), which in turn requires more effort in training, relationships and track record of results.

Effectiveness always requires more investment than efficiency. In fact, efficiency is always about cutting and reducing choices. Costs, resources, distractions, tasks and so on. Effectiveness is additive. We are investing in learning, expanding, transitioning. Efficiency taps our XQ while Effectiveness taps our IQ and EQ more (More on IQ EQ XQ - see here).

Next time we are all facing a choice let us select an effective one and make an investment to get where we are going. Even at a cost.

Lightbulbs123

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Why the technology sector is the most price efficient

Monday, March 2nd, 2009

Technology prices have always been falling

We all know that technology product prices tend to fall 60-80% in a decade for the same spec. Whether it’s DVD players, flash memory, TV, computers, servers - they all follow the same pattern.
The more interesting question is why other industries cannot achieve any similar price reduction.

Following the electronics industry model:

  • a $3.50 latte from a decade ago should cost today $0.70
  • your child’s education “product” should sink from $200,000 to $40,000
  • your car of $30,000 should now be $6,000
  • heart surgery prices in 10 years should drop from $250,000 to $50,000

Of course it does not happen for other industries.

No other industry apart from High Tech outperforms the pressure of inflation. At least not due to productivity and efficiencies. Only due to falling demand. See Real Estate, Investment Assets, etc.

Consumer food product companies have a similar mantra by holding food prices steady in the stores. To achieve that they have to keep improving efficiencies by 4-5% each year just to eliminate the impact of material and labor price inflation.

Then there are industries that do the opposite. Even in today’s economy health care related costs, education and some professional services prices are still growing at 5-8% far outpacing inflation and GDP growth (or lack thereof).

The Monster is not Deflation but Lack of Innovation and Productivity

There is all this talk about the deflation and how falling prices will kill the economy. Maybe so. However I think the real debate should be about productivity, innovation, efficiency and hyper competitiveness.

Annual Productivity Growth 2000-2005 (OECD 2008):

  • Technology: 17%
  • All Manufacturing: 5%
  • Metal products: 3%
  • Textile/apparel: 5%
  • Heavy Equipment; 3%

In the US - industry productivity has been lackluster outside technology. That’s what the tech sector has that no other industry seem to have. In the coming year of falling prices maybe other industries get to practice a little high tech life.

Ht Charts

Posted in Productivity, Success, business models, innovation | No Comments »

Business Models Rule

Sunday, October 5th, 2008

Michael Rappa has a great article summarizing the various types of business models. It is a concise way of analyzing various possible models for a startup idea. The same service or product may be adopted to offline and online business models and have an impact on the overall success of the business.

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He categorizes all business models into the following groups: Brokerage, Advertising, Infomediary, Merchant, Manufacturer (Direct), Affiliate, Community, Subscription, Utility A similar study from MIT classifies it differently and also points out that the selection of the model fundamentally determines the success of the venture as much as the product or service:

Picture 1-3

Alex Osterwalder is one of the consultants focused on business model creation vs product idea creation. For many great companies business model was much more important than product idea (Dell, Toyota). These companies realized that well executed business models are much harder to imitate than products.

Technorati Tags: business ideas, business models, Enterprise 2.0

Posted in Business, Entrepreneurs, Strategy, Success, business models, innovation | 1 Comment »

100 Ways to Make $10 Millions in a Startup

Wednesday, August 20th, 2008

I was at a lunch meeting where the argument came up that there are few ideas left in the world… Sound familiar? So the group made a wager that they will come up with 100 ways to make $10 millions in a Startup. The ideas will be polled and ranked online and the winner gets the group's resources and support for funding. I will be watching this experiment and report when their website comes live.

Th120012

Technorati Tags: business ideas, business models, entrepreneurs, Innovation, Venture Capital

Posted in Entrepreneurs, business models, creativity, innovation | No Comments »

Anticipating 2088

Friday, April 6th, 2007

As Futurologists go few of us have the lifespan to see whether their predictions come true or not.

There are popular visionaries like Karl Fisch, a Colorado teacher of the Shift Happens fame and there are the commercial dreamers of the Future is Wild project that produce yet another insight 100-million year in the future.

(My Karl Fisch favorite is that “by 2049 a $1000 computer will exceed the computational capabilities of the human race“.)

An interesting and more pragmatic approach is what the University of Washington professors do when each faculty publishes their predictions for just around the corner, say the year 2088.

Some highlights from the UW Professors:

- Technology will make prisons obsolete
- Lifespan will increase to several hundred years with preventive medicine starting in the womb
- Human implant for Internet communication interface
- Nanoscale storage devices
- Professional sports will have its own higher education farm system (college alternative)
- No more phonelines
- Walk-in clinics will conduct regular full-body scans and monitor disease development to prevent all chronic disease
- Biological agents will prevent tooth decay. No more dental drills
- Alternative medicine will still be eclipsed with drugs and biological agents

Thblog3214

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DNA Computing

Friday, October 20th, 2006

Scientific American reported that the DNA-based computers now can play Tic-Tac-Toe. Why is this a big deal? This is significant not because DNA-computers will all of a sudden replace conventional servers to power the enterprise. Conventional computing started out solving basic binary problems in the 1940s which is now paralleled with the 2002 announcement when DNA biological computers solving similar complexity problems. That was 4 years ago. Now we have a basic “thinking machine” under way. Conventional computing fueled by Moore’s law got us to enterprise class by the 1970s, client server the late 1980s, the web 1.0 by the 1990s.

DNA computing may do for enterprise and web computing what the first genome sequencing did for biotech. The question is what kind of enterprises will emerge as a result. What problems will be solved in new ways? The first applications are obviously biotech - currently targeting disease modeling, like the West-Nile virus. But is there an emergent DNA-Web infrastructure or just better modeling in biotech and nanotech?

The MAYA-II DNA computer:
2143 Web
It even reminds me of the first Sinclair computer from 1982(below).
1-Tmx

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Xerox Parc vs VC-funded Innovation

Monday, October 9th, 2006

A couple of weeks ago I was at Lucent headquarters where I saw their hall of fame, which is a walk down memory lane, in this case the highlights of innovation of Bell Labs over the years.

The trip reminded me of the great book “Open Innovation” by Harvard Professor Henry Chesbrough. It reviews how much innovation changed from the era of Bell Labs, Xerox Parc to today’s VC-funded innovations in startups.

His core question in the book is of Xerox Parc:


How could a company that possessed the resources and vision to launch a brilliant research center—not to mention the patience to fund the center for more than thirty years, and the savvy to incorporate important technologies from it—let so many good ideas get away?

Hopefully these ideas are no longer getting away given the vast network of angels, VCs continuing funding innovation. More importantly as startups’ exits are increasingly through corporate acquisitions vs. IPOs, it is clear that innovation has found a nice balance of inhouse R&D and acquired innovation (M&A) by the new corporate innovators like Google,Yahoo and others.

Innovate

While many technology companies are buying market share or expanding existing lines through acquisitions, the integration of new innovation continues as a major motive in M&A and more importantly as the fuel for the broadening innovation boom.

Mercer Consulting’s analysis of product cycles vs performance of high tech companies points to product saturation as the main killer of growth. They argue something that maybe counter to the history of technology firms: that technology companies built on innovation (vs marketing and other competencies) are highly unstable business models.
In that sense outsourcing or acquiring innovation may be the lowest risk business model if it is combined with increased focus on customer relationships, improved customer economics and better value propositions. Their research points out:

Very few high-tech companies have converted a hot product into an enterprise relationship. Those that have bucked the bottle-rocket pattern have done so by taking a customer-centric approach to stabilize against the inherent risks of product-centric growth.

So their prescription is marketing and customer intimacy as core competence and product innovation as an outsourced capability. It sure is in line with what we can observe with Microsoft, Google, Yahoo and Oracle and there is a lesson for all the Web2.0 innovators in the M&A queue.

M&A1

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