Friday, July 28, 2006

Open innovation and alliances

It goes without saying that alliances are crucial to an open innovation strategy. By tapping into other organizations for some part of your product, you require structures, agreements and management of those other organizations. Here is a way of looking at the different types of alliances that fuel open innovation:

Dominant partner (Apple iPod, P&G) - in this type of scenario the main partner controls the direction and assumes much of the risk of the venture. Partners do work for hire, or invest in development of their component or process, but don't contribute much to the overall product investment. Accordingly, they have limited or no influence on how the product is marketed, packaged, distributed or sold.

Confederation (Boeing) - in this scenario, the main partner (sometimes called the integration contractor) leverages partners who bring distinctive capabilities to the partnership. These subcontractors often make an ongoing contribution to the design of the product and take on development and investment risk. Their reward is correspondingly greater, for example gaining exclusivity for their component in the product.

Revenue share (ITunes) - here, the contribution of the partners is substantial, including exclusive intellectual property, brand image, etc., and they command a share of the revenue rather than a direct price per unit delivered.

Peer alliance (Sony Ericsson) - the most intertwined relationship is a joint venture. Here there is no dominant partner per se, but a group of partners who contribute capital, management and intellectual property. The peer nature of these relationships can make them the most fractious (see Sony BMG).

Each type of alliance creates its own challenges and issues. So, it needs its own type of management and governance. And, in spite of the legal documents and governance procedures that are created, a requirement to make these alliances work is the effort teams put in to communicate clearly, understand each other, and solve problems.

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Thursday, July 27, 2006

Awaiting user innovation in business software markets

There's an increasing interest in user-driven innovation, and how this phenomenon can be leveraged in other industries. I posted on it a few weeks ago, and Dominic Basulto of the Business Innovation Insider points to a detailed evaluation of how user designs were integral to the creation of an entire industry (want to learn more than you ever thought you could about the rodeo kayak industry? click here).

All the literature I've seen on this topic deals with consumer products. But what of products for business? What is the state of user innovation in those markets?

At one level, business customers have a tremendous ability to innovate--they have resources, technical skills, and subject-matter knowledge, all in house.

Yet the authors of the rodeo kayak user innovation study (Carliss Baldwin, Christoph Hienerth, and Eric von Hippel) point out several prerequisites for user innovation that the business markets definitely lack, and may never achieve:

  1. A "nonrival" environment - the rodeo kayak enthusiasts willingly shared their designs with each other, which promoted further refinement and innovation. It would take a really progressive group of companies to overlook their competitive rivalries and share so openly.
  2. Passion - the rodeo kayakers love for their sport drove them to want the best equipment and devote lots of time to improving it. Companies on the whole are not passionate. They are be risk averse and bound by inertia. Corporate workers fear bad outcomes more than they desire great outcomes.
  3. "Dominant design" - Baldwin et. al. define this condition as necessary for the flourishing of user-directed innovation. A dominant design is "a standard architecture that almost all firms in an industry adhere to."And for most business products, there are not dominant designs. Rather (think SAP, Oracle, Peoplesoft as an example), there are proprietary designs and license terms that restrict users (and anyone else) from altering them.
On the good side, companies are investing in open source work like Linux and the like, and this forms an early basis for the kind of cooperation needed for user-driven innovation. But for the near future, don't expect the rodeo kayak scenario to be repeated with your salesforce automation software.

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Wednesday, July 26, 2006

Corporate blogging part 2

The other day I started a look at corporate blogging. And, as I think about it, the phrase itself is an oxymoron. Blogs are the creations of individuals (or small groups of individuals). The individual voice of the poster is as integral to the success of a blog as the content itself is.

Nothing could be less individual than a corporation. The most successful blogs about corporations (Scobleizer or Mini-Microsoft) are singular voices from within companies giving their perspective on the company. The Johnson King blog (discussed in the earlier corporate blogging post) works for me because the entries are personal and witty, and aren't selling me something. Now, the JK people are communications professionals, so I'd expect a good blog. If you're Silliman's Hardware, it won't come so easily.

I haven't talked you out of doing a corporate blog yet? Some don'ts, then:

1. No posting by committee.
2. No sales pitches in blog posts. Leave that for your website. Blog entries should be interesting, informative and provocative. Period.
3. No PR department ghostwriting for busy executives. If they want to do a blog post, let 'em write it themselves.
4. Don't try to stay on message. It'll sound false.

And some do's:

1. Do discuss issues that are important to your customers.
2. Do have a firm point of view.
3. Be humorous from time to time, if possible.
4. Post regularly.

The blogging white paper that Johnson King PR offers (you can request it here) is a pretty good introduction and is worth a read.

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Tuesday, July 25, 2006

What in hell is the fuzzy front end?

No, it's not a new way to customize Honda Civics. According to the Product Development and Management Association, the Fuzzy Front End is a model describing what happens in the earliest stages of new product creation.

So "front end" is taken care of. Now, why "fuzzy"? Because it's unpredictable, nonsequential, inconsistent and hard to measure. That being said, there's an increasing belief that this phase can be improved, and through such improvement great leaps can be made in increasing the returns from new products and services.

The article linked above describes the fuzzy front end and a way to formalize (to the extent something fuzzy can be formalized) the model to provide more consistency and predictability in companies' product creation efforts.

First, some important definitions from the article:

  • Opportunity: A business or technology gap, that a company or individual realizes, that exists between the current situation and an envisioned future in order to capture competitive advantage, respond to a threat, solve a problem, or ameliorate a difficulty.
  • Idea: The most embryonic form of a new product or service. It often consists of a high-level view of the solution envisioned for the problem identified by the opportunity.
  • Concept: Has a well-defined form, including both a written and visual description, that includes its primary features and customer benefits combined with a broad understanding of the technology needed.
To be continued...

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Monday, July 24, 2006

When good deals go bad

Daniel Gilbert, an occasional contributor to the New York Times, has a provocative piece in today's paper about how participants in disputes feel intensely how they were wronged but fail to see how their actions harm others. (I discussed an earlier piece of his in a post from another blog.)

He uses the example of the recent escalation of violence in the Middle East to demonstrate how the world's most intractable conflicts have a "they started it" rationalization that is as old as childhood. Such a mindset allows the participants to justify retaliating while remaining unaware of the harm their actions have caused.

An excerpt:

Both civil and religious law provide long lists of behaviors that are illegal or immoral — unless they are responses in kind, in which case they are perfectly fine.

After all, it is wrong to punch anyone except a puncher, and our language even has special words — like “retaliation” and “retribution” and “revenge” — whose common prefix is meant to remind us that a punch thrown second is legally and morally different than a punch thrown first.

That’s why participants in every one of the globe’s intractable conflicts — from Ireland to the Middle East — offer the even-numberedness of their punches as grounds for exculpation.

The problem with the principle of even-numberedness is that people count differently. Every action has a cause and a consequence: something that led to it and something that followed from it. But research shows that while people think of their own actions as the consequences of what came before, they think of other people’s actions as the causes of what came later.

Gilbert cites several psychological studies that demonstrate this principle. The result, as you can guess, is deadlock.

I found his observations fascinating in how they explained what I've witnessed when contracts, alliances, etc., fall apart.

Typically, small misunderstandings or injustices accrue, on one or both sides. They are typically not adequately resolved or defused, and eventually one side lashes out or takes a precipitous action. This starts the retaliation, re-retaliation cycle, with each side certain that the other is in the wrong. Often, in spite of the objective benefits of resolving the conflict and the costs of divorce, the result is... divorce.

So how do we prevent these good deals from going bad? The challenge is to learn to overcome your innate wiring, to put yourself in the other's shoes and, to paraphrase the Dalai Lama, be compassionate, but not allow yourself to be victimized.

According to Gilbert, this is far easier to say than to do. And thousands of years of history will back him up.

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Corporate blogging - what is it good for?

I received this email this morning:

Hi John

Johnson King PR has produced a white paper on the reality of blogging as a corporate communications tool.

Written by Guy Clapperton, a highly experienced journalist who has been writing about the internet since 1989, covering its rise and evolution for the Guardian, Times, Financial Times and a host of others, the white paper can be downloaded from or requested via email by contacting me at

The white paper coincides with the launch of Johnson King's own blogging service, enabling us to work with clients to develop innovative, fresh content for their own corporate blogs. If you are interested in discussing our blogging service or any other aspects of PR support in Europe please do not hesitate to contact me.

All the best


Mike King
Johnson King PR

I did write him asking for the white paper, and I'll read it and let you know what I think about that. But, let's talk about a few things regarding corporate blogging.

First of all, content is the point of a blog. It needs to be interesting, well-written, and novel (even if novel means that you're one of the few to point out an interesting article or blog post).

It needs to have a point of view--of an individual, not of a department or of a company. It has to be willing to offend or anger. Blandness is a surefire approach to irrelevancy. Corporations hate to anger or offend people.

It also needs not to be a sales pitch. A blog that's a sales pitch is as useful to readers as spam. No one will come back. If there's any commercial value to a blog at all, it is to engage the audience, perhaps to the point where some say, "I'd like to learn more about who writes this and what else they do."

Can a corporate blog do these things? There's not a long track record of successful ones. Here's Johnson King PR's blog. Does it meet the criteria?


Wednesday, July 19, 2006

Open innovation

I referred to open innovation in an earlier post about Procter & Gamble's innovation strategy. The concept is becoming well-publicized in product development forums. This primer, from the Product Development and Management Association's Visions magazine, is a good introduction to open innovation. [The PDMA blog has an ongoing conversation about this topic as well.]

In brief, open innovation consists of embracing external sources of intellectual property as components of the product--ideas, designs, components--as a way of increasing your new-product development leverage, both by reducing investment and increasing throughput.

The thinking behind it is, no matter how many researchers, programmers, etc., you have on staff, there are multiples of this number working on similar problems outside your organizational walls. Locate and use their work, and you will save time and money, making it more likely that your product will be successful. According to the Harvard Business Review, P&G's innovation success rate has doubled since they committed to an open innovation model.

And, once a product has been developed, finding and using alternate means to monetize it (licensing IP, including as a component of others' products, etc.) is a way to further improve the ROI of the product development effort.

All of which puts a lot of pressure on external alliances and networks, because they are the fuel that makes the open innovation process work. Which is a subject for a future post.

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Tuesday, July 18, 2006

Computer models outperform humans in decision-making--surprising?

The New York Times today has an article about a Dutch researcher, Chris Snijders of Eindhoven University of Technology, who has completed a study asserting that, in many situations, computer algorithms make better decisions than human managers.

The computer models' dispassionate evaluation and selection of alternatives, according to Snijders, are faster and more accurate than people's inconsistent decision-making.

As I reflect on my experience, both with computers and managers (including myself), I tend to agree with Snijders. Even now, as metrics-gathering has gotten better and information dashboards abound, managers still discount the evidence they see, or apply their experience selectively, or are too risk-averse, to make the most effective decisions for the business.

And don't the Toyota Production System and Intel's "Copy Exactly" approach attempt to remove human variability from processes to achieve better consistency, cost and quality?

Let's crank up the computer models and see what they can do. If they work for the quants, how about trying them elsewhere?

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Monday, July 17, 2006

How much is that software worth, anyhow?

Pricing business software licenses is one of the gnarliest pricing jobs around. My pricing bible is "The Strategy and Tactics of Pricing" by Tom Nagle. I took a class with him at Boston University around 1990 while I was studying for my MBA, and this book has been on my bookshelf every since.

Nagle says that you should take into account incremental & avoidable costs, economic value of the product, and competition when pricing a product. A good price balances each of these factors to maximize profit.

Enterprise software poses some challenges on this front. First, incremental and avoidable costs are very small (how much does a CD cost? a download?), which creates a dimensioning problem (should we price it per processor? per seat? per transaction?). Economic value is difficult to calculate (especially with complex software programs that span many departments), and prospective customers are often reluctant to let you really see the value they'd receive, for fear that they'd compromise their negotiating position. And good pricing information on competitors is rare, since deals are often priced on a one-off basis--never mind understanding their strengths and weaknesses enough to create the proper premium or discount.

Some of these problems, I think, have helped the Software as a Service (SAAS) industry. Since SAAS bundles in application support and hosting, it has a much clearer incremental cost picture, which helps justify a certain price level. Also, SAAS applications have been smaller in scope, yielding an easier economic value assessment for both suppliers and customers. And competitive pricing information is available, given the internet-based selling models of the SAAS providers.

There are certainly lots of reasons for the recent rise of SAAS, but I think pricing transparency is one of them.

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Wednesday, July 12, 2006

Finally, a well-reasoned, and reasonable, net neutrality proposal

In all of the noise about net neutrality, especially the polarizing PR battle fought between the network operators (AT&T, Comcast, etc.) and the big content players (Yahoo, Google, etc.), I was ready to say "a pox on both their houses!"

But, finally, amidst all the shouting, comes a very well-thought out, truly "neutral" proposal from the Center for Democracy and Technology (thanks to Stephen Wildstrom of Business Week for publicizing their proposal). CDT recommends a legislative solution that is lean but carefully balances the legitimate commercial needs of the broadband internet service providers and the low barriers to entry, application-indifference, and nondiscrimination that made the internet the social benefit it has become.

Some highlights:

  • focusing any regulation only on the Internet service provider businesses of the operators. Closed networks (like the existing cable television distribution network) as well as internet-based VPN services would be exempt.
  • fees for content requiring different bandwidth should be levied on the end-users of the content, not the producers of the content
  • allowing carriers to monitor and manage content for the purposes of fraud prevention or prevention of illegal activities.
  • supporting notice and takedown processes to quickly remove pirated material
Wildstrom goes a bit further than the VPN concept and recommends allowing a two-tiered Internet, with one base tier free from discrimination, and premium tiers available at a cost, either to the end-user or the content provider or both. That sounds reasonable too.

When are the stakeholders going to get together and start working on productive solutions? Because all the yelling is making my head hurt.

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Tuesday, July 11, 2006

Farewell, Professor Levitt

From the New York Times:

Theodore Levitt, a former professor at the Harvard Business School credited with coining the term "globalization" and with championing the undervalued role of marketing in defining what businesses should make and sell, died June 28 at his home in Belmont, Mass. He was 81.

I've read a number of his articles, and a copy of "The Marketing Imagination" has been on my bookshelf for more than fifteen years. Thanks for all the insights, Professor, and may you rest in peace.

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How do you market & sell a product that isn't a product?

Call it infrastructure, a platform, an architecture. Call it middleware, whatever. A growing number of high-tech companies are creating products that are primarily enablers of other applications. Left to their own, unconnected to other pieces, they do... nothing.

One way to determine whether something fits this category is to ask for a demo. If it's not readily demoable ("We can't easily show you messages flying across an interface"), you've found one.

Why am I telling you this? Because products like these are really, really hard to market. God forbid you work for one of these companies and you are asked what your product does. Your only hope in that situation is to use the old BASF tagline: "We don't make a lot of the products you buy, we make a lot of the products you buy better."

There are two approaches as I see them. One, sell "platform products" as toolkits. If you do, remember one thing: you need to sell toolkits to builders, not to homeowners. Homeowners want a new kitchen, not the tools to build one.

This brought to mind an article in Harvard Business Review from last November, entitled "Marketing Malpractice: The Cause And The Cure," by Clayton Christensen ("The Innovator's Dilemma"), et. al. In that article, Christensen makes a very strong case for marketing at its most basic--in order for a product to be successful, it needs to be connected clearly to its use: in other words, what job does it do?

An example cited in the article is Federal Express' perfect fit with a job that needed to be done better: "the I-need-to-send-this-from-here-to-there-with-perfect-certainty-as-fast-as-possible job," as they call it.

Or, to use a term that has arisen since that time: "I need to Fedex it."

Can the "job focus" Christensen discusses extend to platform products? I think so. If you don't want to sell toolkits, and many don't, think of some jobs your platform can solve. You'll probably need to bundle in more software or services to make the platform fit the job, and you'll need several different products (but based on the same platform) to serve different jobs, but it can be done and done successfully.

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Monday, July 10, 2006

GE uses "net promoter score" to measure customer satisfaction

The above-linked article from today's WSJ online illustrates how General Electric is increasingly relying on customer surveys focused on customer referenceability to measure the performance of their products and business units.

Most companies' customer surveys are hopelessly lengthy and confusing. In many cases, they measure things the companies think are important rather than the things customers think are important. Which is a waste of time and money.

The concept GE uses, pioneered by Bain's Fred Reichheld ("The Ultimate Question") presumes that the answer to a simple question--"Would you recommend us to a friend?"--is the best measure of customer satisfaction. The surveys GE uses have more questions than that, although starting with that single one makes a lot of sense to me.

"Would you recommend us to a friend?" It's a question every company should ask its customers regularly, and take great heed of the answers.

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Search-engine advertising - benefits and drawbacks

The Wall Street Journal article (linked above) outlines well the opportunities and challenges of marketing using search-engine advertising. Here is a summary of my thoughts on search-engine advertising. In a future post, I'll talk specifically about the challenges of doing B2B advertising on the search engines.

Top 5 benefits of search-engine advertising:

1. Many people who use search engines do so because they are looking for something to buy (a far larger percentage compared to those who read newspapers). Therefore, they are very open to relevant advertising.

2. Search-engine advertising, properly constructed, is highly focused and targeted toward people who use your service.

3. You only pay when people click through to your web page.

4. You can set a monthly budget and review detailed statistics of how your ads are working.

5. It's inherently regionless; customers from anywhere can find you.

Top 5 drawbacks

1. You need a very good web presence to take advantage of those who click through. Your web page is your storefront and needs to be tended carefully.

2. If you have the wrong keywords (too limited or too broad) you won't have enough clickthroughs to make it worthwhile.

3. There is a certain amount of click fraud (i.e., sites who click through with no intention to buy, either to increase their statistics or to cost you money). As such, you need to monitor the reports carefully to ensure that your clickthroughs are turning into sales.

4. Your keywords need to be very well constructed, and monitored regularly, to ensure you are not wasting money on useless clickthroughs. A good keyword should have at least 1% clickthrough.

5. It's inherently regionless. If someone searches on your keyword, they can find you, no matter where they are. If your business services a limited region, basic search-engine advertising could bring you lots of prospects you can't service. Local advertising is emerging and will be a big help to those businesses.

Google has a nice FAQ page for those with more questions on search-engine advertising.

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Friday, July 07, 2006

To close, a purchaser must be ready, willing and able

Why do so many forecast sales never reach closure? Usually, it's because one or more of these three criteria has not been satisfied. (Source: "The Selling Fox" by Jim Holden, an excellent resource for improving sales effectiveness. Holden's training programs are also very good.)

Ready - the purchaser must have evaluated all possible options to solve his problem

Willing - the purchaser must have decided that your solution is the preferred option

Able - the funding must be available to make the purchase

This advice sounds trite. Yet so many deals that companies have counted on to make a quarterly or yearly number have fallen short because the salesperson or the leadership did not fully answer these three simple questions.

Especially the third. Please, please, please--don't ever lose a sale because you didn't ask the third question.


Thursday, July 06, 2006

Ending the war between sales and marketing

The most recent Harvard Business Review features the above article by Philip Kotler et al on the eternal conflict between sales and marketing, and how it can be resolved. Rather than rehashing the article, which is well worth reading in full, I wanted to lay out my perspective on this issue.

Having worked on both sides of the fence, I've observed the following:

  • Salespeople think marketing wastes money and doesn't really understand the customers for their products and the customers' needs.
  • Marketing people think salespeople are untrustworthy, won't follow direction and will sell anything they can, whether or not it can be built or delivered.
And I've observed this as well:
  • Salespeople desperately want great products to sell, and want great communication/promotion/etc. to help make selling easier.
  • Marketing people desperately want a great sales force to make their visions for conquering a market become reality.
So, therein are seeds both for discord and for cooperation. I've worked a lot in the new product development process, especially around B2B products with complex service characteristics (such as hosted solutions). In that situation, a strong collaboration between sales and marketing is essential for success.

A new product requires lots of feedback from the market, while it's being developed, in order to closely fit the customers' needs. Sales also needs lots of information about the product so they can talk intelligently about its capabilities and get usable feedback to product marketing.

A team approach has worked best for me, with sales, marketing, service and development forming a product team that has the follwoing roles:

Sales works to gather feedback from prospective customers, tests ideas that marketing's research has come up with, and provides input as to what features/architectures/etc. can best be sold in the marketplace. And perhaps most importantly, they bring one or several first customers through the sales process so the product can be sold and installed as a reference for future sales.

Marketing takes the sales feedback from prospective customers along with data about broader market needs and creates and maintains a roadmap for the product.

Development takes requirements from marketing and sales, recommends suitable architectures, provides feedback as to features that are more or less difficult to create, and ultimately builds and tests the product so that it performs to specifications.

Service Management creates service requirements from sales' and marketing's input and ensures that those service attributes are built into the product or the service wrapping around the product, as appropriate.

In the best situation, this team works as a seamless group, under a single executive, to create and incubate the product, until such time as it is ready for a broader market rollout.

And who on this team is responsible for product management? All of them together.

Wednesday, July 05, 2006

It's like Christmas in July

Oh boy, oh boy, I am like an adolescent who has just scored a copy of the Sports Illustrated Swimsuit Issue. Into my hot little hands has just been delivered the brand-new July-August double issue of the Harvard Business Review.

And it's all about sales. Yes! Forget about the capitalization analyses, human resource studies and industrial process deconstruction you're used to seeing in HBR. Now we get the good stuff.

It seems that sales is the hardest business area to study and model in an academic sense. Yet thinking of it as a black art has hindered the effort to improve sales effectiveness more than anything else I can think of.

I look forward to scanning every diagram, reading every word, and reporting my findings right here.

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