McKinsey Global Survey Results: IT’s unmet potential - The McKinsey Quarterly - IT’s unmet potential - Business Technology - Organization

McKinsey Global Survey Results: IT’s unmet potential - The McKinsey Quarterly - IT’s unmet potential - Business Technology - Organization

In their recent Survey published on December 2008, McKinsey Quarterly
highlights an important conclusion: the growing risks respondents face from
information- and technology-based disruptions and the corresponding increase in
importance of information and technology capabilities for improving business
performance and outperforming competitors.

The conclusions of the survey point in the direction of one of those
strange areas that modern management is still in its infancy: the use of
technology as a competitive weapon. It is fascinating how frequently IT issues
are managed separate from the business strategy as if IT was only a function to
support the business. As this report finds out, one of the desired functions
that IT can play is the creation of new products and services that leverage new
technological capabilities. The obstacle for doing so frequently lies in the
managers who show an old aversion to understanding technology and wht it can do
to the business.

One interesting initiative to try and bridge these two worlds is the Singularity University
For those familiar with Ray Kurzweil and his books The Age of Spiritual Machines and The Singularity is near, this is an attempt to " assemble, educate and inspire a cadre of leaders who strive to understand and facilitate the development of exponentially advancing technologies and apply, focus and guide these tools to address humanity’s grand challenges". With backing from Google and NASA and a well known group of faculty it is well positioned to take the lead in educating leaders (business, governement and others) in the possibilities of applying technologies to solve the most challenging problems of today. Good luck in the effort!

Entrepreneurial politics

We recently organized a panel at Insead Business School in Singapore to talk about the topic of Entrepreneurship in Singapore. My interest in organizing this came from what I've been learning about the development of Singapore in the last years. I was surprised to see how politicians in Singapore were defining very specific objectives for the country in terms of how they want to compete internationally; which areas of the economy they wanted to develop; how to attract talent;.. This is what I tagged as "entrepreneurial politics". Know where you want to go, what you want to do to transform a country and then, actually doing it.

Amongst the attendees to the event, we had Lee Yi Shyan, Minister of State for Trade and Industry with special responsibility for Entrepreneurship. The first thing that one notices is that there is a Minister with a responsibility for entrepreneurship. But then, it was fascinating to listen to him describe how they plan to develop Singapore into an entrepreneurial hub in the following years. Advantages go from providing visas to entrepreneurs without a job so they have time to launch their ventures, to equity funding that matches other private funding you may already have, to tax preferential conditions. But in addition, they are creating the culture of entrepreneurship by promoting the spirit of innovation, experimentation and risk taking.

This is a fascinating exercise that they are doing. We'll see in the following years how it evolves. One would only think of two important considerations. Singapore is in itself a small market for any venture, so by definition companies need to be global. And, the stock market is still small and this needs development in order to attract more companies to be established in Singapore.

Why economies don't grow faster?

During a recent research project I was shocked when I discovered that economic growth in the last 100 years has shown a surprisingly consistent behavior: an almost constant rate of long run growth of GDP of 2,5-3% per year. This is traditionally known as the “technology frontier”, implying that for a developed economy to continue growing it must innovate, but that this innovation is only translated into economic growth via increased productivity, at the mentioned rate of 3% per year.

In contrast with this view of the growth rate of developed economies, we have the speed of technological innovation that can be seen across multiple industries like semiconductors, biotechnology, nanotechnology, genomics, IT, etc. In these and multiple other areas, the innovation rate is much faster than a 3% per year. In fact, in many cases we can see exponential growth rates with constant or even accelerating growth factors that multiply, not merely add, to the previous year situation. For example we can see how the Moore Law predicts double capacity of integrated circuits every 18 months (and this law has been happening for the last 20 years).
So why does it happen that the very fast technological innovation that we see across multiple industries is only translated into economic growth at a 3% per year?

In the end, technological innovation is at the center of economic growth. However, there seem to be significant differences between the speed at which different firms, sectors and countries adopt the same technologies.

For example, looking at the impact of IT in US and Europe, we see that during the period 1995-2001, in the US, productivity growth accelerated by 3.5 percentage points per annum in the ICT-using sectors (from 1.2 per cent p.a. pre-1995 to 4.7 per cent p.a. post 1995). This did not happen in Europe, which remained at a constant 2% growth rate in the same period. Since IT is available throughout the world at broadly similar prices– why were European firms not able to reap the same benefits from IT as their US counterparts?

The answer has to do with the market structures, institutions, protections and incentives to adoption that different firms have in different markets. If IT brings an increase in productivity and I'm in a competitive market, I'll adopt IT to remain competitive. If I'm in a protected market, why should I?

As many specialists have well described, it's not innovation per se what matters for economic development; it's innovation adoption within a country that will bring the growth for that country. This should be known for those countries that try to establish themselves as innovative. In some cases they would be much better off by simply improving conditions for adoption of existing innovations in their markets rather thah trying to establish themselves as the champions in innovation.

Edge Perspectives with John Hagel: Unanswered Questions at Supernova 2007

Edge Perspectives with John Hagel: Unanswered Questions at Supernova 2007

In another great post from John Hagel, one can find some very deep questions in the intersection of business strategy and information technology. Willing to see the outcome of the Deloitte institute.

The areas I find most challenging as I have mentioned in my comment there, are the impacts on organizational design of non-equilibrium situations. If companies adopt a "wikipedia innovation model" that requires that products are launched half-baked, and letting others finish them, what are the implications for the firm?

Another area that I find very interesting is the role of companies as talent development machines. I think that companies will progressively become like hubs that attract talent because individuals can experiment with others that they won't be able to find in other places.

Finally, I find that the area dedicated to platform questions would be enriched if the need for Information Management was included. As I've written many times before, we're in our infancy in the way we measure the value of information both from the individual as well as the corporate perspective. SOA based architectures are fine from the technology perspective, but we need more. We also need means to normalize our information inside companies, but much more when interactions abound with external organizations and individuals.

IDC eXchange » Blog Archive » CEO Agenda for 2007: Customer Care and Innovation On Top Again

IDC eXchange » Blog Archive » CEO Agenda for 2007: Customer Care and Innovation On Top Again

Just to reiterate the comments in my previous post, Innovation appears in this report from IDC as #2 in the CEO priority list in 2007.

After customer care/service that takes #1, product and service innovation takes #2: "The growing focus on greater (and faster) innovation in product and service offerings is directly tied to the growing competitive pressures of globalization"

This makes sense and is consistent with what we said before. The more an industry or a company is exposed to the pressures of globalization, the more it is going to need innovation to gain and maintain its competitive position.

The 2007 IBM Business Leadership Forum | AlwaysOn

The 2007 IBM Business Leadership Forum AlwaysOn

A very interesting post about the IBM Business Leadership Forum. In this event, like in others before (Software 2007) and like in the recent Business Week article, Innovation is the key word. There's also a great book and conversation going on about the myths of innovation.

But let's go step by step. In the first post I mention, I like the concepts presented by Sam Palmisano at the opening session. Looks like Globalization and Innovation are two ideas that are converging: The key forces causing the world to converge around the subject of innovation are the realities of globalization. And the three pillars of Globalization from economics to expertise and openness, very well define in my view the process we're living.

The process of globalization started by the economic driver, in search for lower costs, is now followed by the expertise globalization. The access to bigger talent pools that are starting to become much more accessible, due to two factors: mobility and remote working capabilities.

The third factor mentioned, openness, is a good way of defining the idea of inter-operability, not only applied to software, but also to governments.

All this is very good. But why exactly is Innovation the key pillar for everything and how does it in reality relate to globalization? Furthermore, as also identified in the BLF, why is "business model innovation the most important form of innovation"?

The simple answer could very well be a very natural phenomenon: in the world of economic and information flows, the more agents in the field, and the interactions happen amongst them, the more probabilities you have of experiencing change. If we combine the three mentioned factors, economics, expertise and openness, we can perceive that the industries in which not only economic flows but also talent flows can happen, the level of change is accelerating. And this forces the incumbent players to be alert and ready to change if alternative models appear. The truth of the matter is that the higher strategic risk is probably continue too long doing the things that were right in the past.

As usual, how technology is used and how technology companies adapt to the market, is a fantastic way of observing these trends. As the very good report from McKinsey and Sand Hill shows, Software Innovation is ranked as the top priority from software customers, in the form of new products. If customers are saying this, what you can conclude is that they are needing new products to support and maintain their own industrial and organizational innovations. Companies in every industry segments, exposed to the forces of globalization are being forced to innovate. And in this push, they are asking technology companies to provide them with new products to support this race.

In other words, Innovation is fundamental, it is here to stay and it is deeply grounded in the fundamental changes that we're seeing in globalization. The more globalization we have, the more innovation we're going to see because the more changes are going to happen to the structures and ways of doing business.

Forrester Information and Knowledge Management: The New Software Industry – Forces At Play, Business In Motion

Forrester Information and Knowledge Management: The New Software Industry – Forces At Play, Business In Motion

This blog entry from Forrester brings back the discussion about the business model of the software industry. What is the impact of SaaS in the industry? Are mature software companies forced to increase the contribution of services to their revenue streams more than new licenses do?

The most important question to ask here, I believe is: what are customers buying? Do they buy tools or do they buy the outcome of using those tools?

If you think they continue to buy tools, the traditional packaged licensing model applies. If you think they buy the result of applying that software to their business, then it's not that clear.

The presentation from Michael Cusumano describes in detail the evolution of software firms and the combination of software and services. He appears to detect a rule that applies to software companies: when they reach the age of 23 years old, services (including maintenance) surpass license as the larges contributor to company revenue.

The interesting factor is that, although services can have positive contribution to the net profit, investors typically place too much value on products over services. Is this sustainable?

However, there is a terminology confusion with the "service" concept: do we talk about the services economy, or are we talking about IT-enabled services? One of the most attractive ways of looking at it is: when to "servitize" products and when to productize services.

Whenever you can codify or formalize specific actions, those can become IT executable services, with clearly defined rules of execution. That means you can "productize" a service. Whenever you need to add differentiation and pay for utilization not for capacity, you have an opportunity to "servitize".

The transformation in the software industry is notorious and fascinating. Can this be transplanted to other industries?

IBM - Expanding the Innovation Horizon Global CEO Study 2006 - United States

IBM - Expanding the Innovation Horizon Global CEO Study 2006 - United States

In recent weeks I've found myself having some very interesting discussions about innovation in large corporations. Amongst them, I would remark one with the director for innovation of one of the leading bank in Europe and another one with the head of strategic consulting in a large professional services organization.

I normally recommend this study from IBM, as well as the Global CEO 2006 study . However, I found myself in both cases describing my own experience practicing with innovation and some of the lessons learned for a day to day effective management of innovation within large corporations. And since I've been asked in previous occasions to articulate these findings, here they go:
1- We had a structured approach to innovation. We clearly differentiated invention (a moment of magic inspiration) from innovation (a day to day obsession with improving results) and simply looked for ways to programmatically find new areas of improvement. A portfolio analysis of your business, using BCG matrix or Ansoff matrix can very well help to start with.
2- You want to have a model for decision making that incorporates all relevant stakeholders. You don't necessarily need to agree on everything, but everyone needs to agree on a model. Importantly, people must agree to disagree. In large corporations dealing with matrix like structures, with countries and divisions, this will be crucial.
3- Get the sponsoring of the senior management. Once the group has decided that an opportunity will be pursued, there will be times when other priorities will jeopardize the existence of the embryonic business. Senior management support helps ensure that there are frequent conversations at all levels that help rise visibility and monitor progress of the initiative.
4- Get an entrepreneur. Large organizations (and small) are inertial: you will need high levels of passion and energy to move the beast, so don't try to emulate: it won't work. Find someone passionate about the project, who knows about it, and can be credible about the topic.
5- Ensure focus and ownership. Once you decide for something, give someone full ownership for it. Give it 1, 2 years to see if it flies. If it doesn't, then kill it, but make sure that during the test time, there is full dedication to it. People in the organization will be too busy doing everything else they are doing now, so avoid the euphemism of 50% of time. Also, define clear boundaries and ownership; in other words: no where to hide for the good or bad.
6- Provide organizational support. Small things won't reach the needed critical mass to enter in the radar of large marketing organizations. Also, it will be immaterial in large P&L of regions or countries. You need to ensure a parallel organizational structure that ensures time, resources and support.
7- This is about innovation for results, so ensure regular reporting and business review. Again, it is important to distinguish here the invention and innovation worlds: you really want to bring results, so measure them. Don't accept the "We'll give it our best shot type of approach". Results are sacrosanct.

Yes, I know, nothing new. But with the fanfare about innovation that we frequently read, we forget that the whole purpose is to improve results. Rest assured that some people will not like this model. But that's exactly when you can start to distinguish the inventors from the innovators in the organization.

Chaos by design- an inside story of Google

http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/02/8387489/index.htm?postversion=2006100210

I was about to name this post "innovation with no direction", which I believe is the most important managerial lesson we can get from this article. The guys at Google have got it right when it comes to innovation (and other things as well).
In today's world, innovation happens more outside organizations driven by self-assembling groups that pursue their own targets, than inside companies with a well dictated agenda for innovation. Why not try to make it as emergent inside as it is outside?
Well, you can do that if you're prepared to adapt your own business model depending on the results. That is not apt for most companies today. There must be a paradigm shift in the way we think of innovation. In the traditional model the innovation gets killed when it reaches the execution phase. In the new one, it gets killed if it does not fly; instead of death by management, projects can be death by natural selection. Managing innovation is supposed to be finding new ways to do something. Here we're talking about finding new things to do. And that's a different story.