The new media onslaught is making entrepreneurs out of creators

An article from the New York Times earlier this week ("Bridging The Gap, The Sequel") starkly illustrated that venture capitalists from Silicon Valley and creative types from Southern California are having difficulty cooperating to create financial and partnership models for new media.

One of the biggest obstacles, according to the articles, is the Southern Californians' focus on upfront cash rather than long-term equity.

How this situation came to be is easy to understand: when the means of production of creative property were expensive, there was a distinct separation between the "suits," who raised needed capital, and the "talent," who wrote, acted, sang, directed, etc. The suits financed productions and paid the talent, who worked job to job. It was in the talent's interest to get as much of their payment upfront as possible because (1) they didn't know when their next job would come through and (2) the suits could, and wanted to, maintain full ownership of the property.

Now production costs can be much smaller, for music, video, text, etc. Prices for distribution are coming down too as new outlets emerge for digital distribution. And media companies are looking to hedge their risk as the old moneymakers (CDs, DVDs) erode.

As a result, an entire new entrepreneurial class has emerged, between the suits and the talent, combining the ability to raise money, cut deals, etc., with songwriting, producing, or acting. Around this "middle class" is a new set of technology and business enablers that are providing key pieces of the production and distribution infrastructure for these creators. (This edition of the radio program "Fresh Air" discusses some of the new models and companies emerging in the music business. Companies like Indieflix provide distribution services for video/film producers.)

Here's an example of the new world order for music: the LinkedIn profile for Fran Ten of the LA band West Indian Girl:

oversee and run all the departments of the west indian girl business - management, marketing, new media, touring, merchandising, promotions, licensing, legal, accounting, art, etc etc.

music is a business and musicians that dont understand this are at a disadvantage.

this job is just as much a blue collar job as the one i had in high school working at a brake factory in grand rapids, mi. sometimes i think it's even dirtier.

Technology advances have made internet video and mobile entertainment accessible to consumers on a wide scale. The business models are lagging behind. The old way--suits and talent--isn't going to be able to work them out. The "middle class" will have to do it.

(Photo: a still from "Fields of Mudan," the all-time best-selling DVD on Indieflix.)

mobile, media, alliances, technology, music, video, business models, New York Times

Channel partners are not your direct sales force

There's a nice post over at the Achieve Market Leadership blog talking about why B2B companies struggle to sell through channel partners. In sum, companies treat channel partners as if they were direct sales forces, instead of treating them like retailers.

A direct sales force sells what the company has. It has no option to sell anything else.

Retailers pick and choose which products they stock, decide where to place them, and simply remove those that don't sell enough. Companies selling through retail realize they need to entice their retailers, either with incentives, great product, or pull-through marketing.

Channel partners often don't have issues with shelf space, but they still decide which products to recommend to customers. If you treat them like a captive sales force, you will be blind to their priorities and issues. As a result, your program won't fit what they need, and they won't push your product.

There's a lot more in the post. It's well worth reading in full.

sales, channels, alliances, indirect sales, B2b

LEGO knows partnering

My two sons, ages 7 and 5, are all about Star Wars. They know every episode, every character, every spaceship. It amazes me that a 30-year-old film (and its successors) could have a hold on little imaginations as strong as if it were released last year.

They also love Legos. And what could be better than combining these two obsessions?

(Well, nothing actually.)

Legos have come a long way since I was a kid. Then they were basic building blocks--eights, sixes, fours, twos, a few windows and wheels. That was it. Now Lego has morphed into a modeling architecture--like the plastic models of my youth, without the nasty glue and paint. It's a nightmare if you want to sort parts, but for a kid, being able to build an exact replica of an AT-AP is priceless.

Going even further, there's a Lego Star Wars web site, as well as a video game, which is permanently installed in our Wii.

In order for Lego to enter this new phase, they had to get comfortable with partnering up. They worked with Lucasfilm Ltd. to license the Star Wars characters, scenarios, etc. (This is one of several licensing projects that Lego is involved in: have you seen the Lego Hogwarts Castle?) In so doing, they extended their brand and made it relevant to an entire new generation of customers--without losing what was distinctive and different about Legos.

(And if you're not a kid anymore, like I am, you can still construct a house with eights, sixes, fours and a few windows.)

(Photo: LEGO Star Wars Yoda, from the web site)

partnerships, alliances, movies, toys

News flash: companies can't succeed in the technology business all by themselves

From CES, the New York Times Bits blog reports that "the monolithic corporation" is in decline, replaced by networks of alliances, creating "a chaotic alchemy that is making business noisier and strategy even less pointed than in years past here."

While the acknowledgement of the importance of alliances is welcome, from my perspective, the only news about this is that it is news. Doesn't everybody know that companies can't do it all themselves anymore?

innovation technology alliances

Boeing learns hard lessons about partner management

(UPDATE: 11 Dec 07 - Boeing confirms it's on schedule for first 787 flight in 1Q2008)

I wrote a couple of weeks ago that the trend toward collaborative product development would create a premium for partner-management skills rather than pure technical skills for innovators. Nowhere is this in bolder relief than in the Boeing 787 project, some of the travails of which are profiled in a front-page Wall Street Journal article today (link - $$).

What surprised me the most were the issues resulting from inadequate supplier management; specifically this:

"In addition to oversight, you need insight into what's actually going on in those factories," says Scott Carson, the president of Boeing's Commercial Airplanes unit. "Had we had adequate insight, we could have helped our suppliers understand the challenges."

And this:

But many [Boeing partners], instead of using their own engineers to do the design work, farmed out this key task to even-smaller companies. Some of those ended up overloading themselves with work from multiple 787 suppliers, Boeing says.

The company says it never intended for its suppliers to outsource key tasks such as engineering, but that the situation seemed manageable at the time. "We tended to say, 'They know how to run their businesses,'" says a Boeing executive familiar with the company's thinking.

As Boeing knows now, selecting a strategic partner and entrusting it with designing, building and delivering a critical subsystem is far different from sourcing a standard part from a supplier. The prime contractor has the right and obligation to critique, probe and view its partner's activities from the inside (you need Doubting Thomases).

In the short term, these delays hurt Boeing. There is PR impact. And financial hits, in the form of penalty payments and cash-flow delays. But it is important to remember that the 787 product will have a 30-year life cycle. By that count, a 6-month or even 1-year delay in deliveries will have a negligible long-term effect.

It's also good that Boeing is not trying to mask its mistakes and instead to discuss and learn from them. Not everyone agrees: the Journal article states, "Lessons that Boeing is learning the hard way could end up helping rival Airbus." This will be true to some extent--but the highly complex lessons Boeing is learning will be hard to glean from the outside. If Airbus gets too confident in its follower role, it will overlook its own inevitable mistakes and let Boeing get out even farther ahead.

(Photo: the 787 Dreamliner. Courtesy of Boeing)

alliances, partnerships, innovation, aviation, mistakes, project management, product development, Wall Street Journal

Innovative companies must excel at partnering

There's a fascinating interview at Harvard Business School Working Knowledge with HBS professor Alan MacCormack, covering innovation and how it's moving away from Corporate R&D and into a collaborative web of partnering & alliances. (You can find a working paper on the subject here.)

According to MacCormack, there are several reasons why this is so:

1. Products are becoming more complex, and therefore it's impossible to retain all the competencies in house to create them.
2. Open standards and architectures help allow work to be more readily distributed to partners.
   
3. The growth of developing economies means that competitive, at times distinctive work is available at lower prices.

The implications of collaborative innovation fascinate me. It means that R&D professionals will need more negotiation and management skills than technical skills, and that the ability to manage internal politics will be less important than the need to bridge corporate & geographic cultures.

I'm not aware of anything in business-school curricula to prepare the next generation of managers for this challenge. (HBS students should seek out courses by Bazerman and Malhotra, as well as MacCormack.) There certainly was nothing of this sort that I learned for my MBA--any learning was entirely OJT.

negotiation, innovation, open innovation, alliances, HBS Working Knowledge

Mistake Bank #12 - Don't forget about support!

What follows is a sample of a project I've been working on called the Mistake Bank. It combines narrative, learning from mistakes, video and web2.0 in an environment that companies can use to train new employees, create a corporate history, connect workers and mentors, and bring more humanity to the workplace. Email me at inquiry@caddellinsightgroup.com if you would like to know more about the Mistake Bank.



When John Caddell began his first job as a product manager, he inherited a new product that was being sold by a large partner. And once the first sale happened, he learned that having a support strategy is not optional.

mistakes, international, information technology, Mistake Bank, narrative, learning, marketing, distribution, software, web 2.0, product management, technical support

If you want to find innovation, don't look for market share

Here's a blanket generalization: market-share leaders don't innovate.

Exhibit A is the cellphone industry. The real innovation in the US mobile market is coming from T-Mobile, the fourth-largest operator. We discussed its combination WiFi/cellular package in an earlier post, and today the Wall Street Journal wrote that T-Mobile is the most enthusiastic operator partner of the Google-led Android alliance, seeing in it the opportunity to develop a distinctive user experience. And to help create innovative and better integrated services, T-Mobile is getting more involved in its handset manufacturers' design process.

One question is, why can't leaders be more innovative? The most straightforward explanation gets to the heart of the leader's paradox. Feeling they have more to lose causes leaders to become more and more conservative, settling for incremental upgrades and not seeing (or not valuing) the new and bold.

Fear of cannibalization also inhibits innovative thinking at market-share leaders. The question "What's this going to do to all the people we've sold the old product to?" has probably doomed thousands of worthy innovation efforts.

While upstarts and companies who are trying to catch up are freer to act.

The leader who figures out how to instill this type of thinking in a market-leading company should win the Nobel Prize for Management.

innovation, mobile, Wall Street Journal, wireless, handsets, alliances

Authors recommend improving alliances using the soft stuff

Aren't detailed plans, firm contracts and hard metrics the best way to ensure that your alliance performs to expectations?

Maybe not. Jonathan Hughes and Jeff Weiss of Vantage Partners write in the November Harvard Business Review ("Simple Rules For Making Alliances Work" - link $$) that specific goals and contractual commitments are necessary but not sufficient for alliance success. Why? Because alliances are too complicated to manage with contracts and metrics. Write Hughes and Weiss:

Alliances, however, are not just any business arrangement. They demand a high degree of interdependence between companies that may continue to compete against each other in the marketplace. They require the ability to navigate—and often to actively leverage—significant differences between partners’ strengths and operating styles.

Hughes and Weiss go on to set out five principles for better management of alliances:

1. Focus less on the business plan and more on how you'll work together
2. Develop metrics pegged to alliance progress as well as alliance goals
3. Instead of trying to eliminate differences, leverage them to create value
4. Go beyond formal governance structures to encourage collaborative behavior
5. Spend as much time managing internal stakeholders as on managing the relationship with your partner

These sound right to me. When I've seen alliances go south, it's when the human interactions don't live up to the strategies, or when cultural differences promote alliance-damaging behaviors, or when the rest of the business tires of the difficulties of working with an alliance partner.

It also seems that narrative techniques would be very helpful in surfacing and exploring the differences between firms. Collecting and making sense of brief anecdotes that are meaningful to one company can help the other understand the deeper strengths and culture of its partner.

The other benefit I see working with the Hughes & Weiss prescription is the ability to create new value and innovation through the leveraging of differences. Going into an alliance, the joint value proposition is only a paper document--and each party's limited understanding of the other constrains what it can be. Once true collaboration is allowed to happen, the possibilities expand dramatically.

alliances, management, narrative, business development, Harvard Business Review

Toyota manages suppliers for the long run

Among the many accolades that Toyota receives, little mention is made of their supplier management. It's strange, given how frequently the press mentions supplier issues at other auto companies--usually in the context of extracting price concessions.

Toyota is very different. As profiled in a recent paper from the Boston Consulting Group, "Getting to Win-Win," Toyota takes the long view with suppliers. For example:

• It spends 3-5 years evaluating a new supplier before awarding an initial contract.
• It understands its suppliers' costs structures in detail and agrees to prices that allow suppliers to make profit. Price concessions must be accompanied by explanations of related supplier cost improvements.
• While it attempts to have more than one source for components, Toyota is willing to give 100% of its business for a part to one company if only that company can meet Toyota's expectations for quality and delivery.
  
• It carefully tracks supplier issues and gets involved in root-cause analysis and resolution of problems--and expects suppliers to learn from mistakes as eagerly as it does. A Toyota supplier is quoted in the BCG report: "Toyota accepts the fact that mistakes do happen. What we need to show is that we have learned from our mistakes and that we will not make the same mistake a second time. Toyota rewards you for that."
  

One hallmark is openness and transparency. And a willingness to invest in a relationship far in advance of an actual purchase. For example, if a company is not awarded business with Toyota, the company will provide "feedback that highlights the areas the supplier should work on to improve its cost, quality and support of Toyota."

In other words, Toyota provides information to losing bidders so that their future bids can have a greater chance of success. Which should be a lesson to all us who sell--don't be afraid to ask why we lost and what we can do to provide better bids in the future.

If it can help Toyota, and its suppliers, it can help our customers and us, as well.

(Thanks to the Economist for the pointer.)

(Photo: a 1981 Toyota Celica by allenp via stock.xchng)

sales buying criteria Toyota alliances business development

How significant is Boeing's 787 delay?

The Wall Street Journal reported today (link - $$) that Boeing has pushed back the launch of their 787 Dreamliner aircraft by six months, due to delays from partners supplying key subcomponents. Boeing's stock fell nearly 3% on the news.
But what's the long-term impact? Using the framework set out in "Reinventing Project Management," by Aaron Shenhar and Dov Dvir, we can evaluate the project and get an idea of the long-term cost of a schedule slip. (Here is a prior post on this book.)

"RPM" looks at projects over four dimensions: novelty, technology, complexity, and pace.

Novelty: on Shenhar and Dvir's scale of extension, platform, breakthrough, the Dreamliner project is a new platform.

Technology: on their scale of low-tech, medium-tech, high-tech and super-high-tech, Dreamliner is high-tech--using technologies proven in military applications in commercial aircraft for the first time.

Complexity: scale is assembly, system, array. Dreamliner is an array project (most new product developments are system projects, but given Dreamliner's unusual complexity--e.g., subcontractors work on their pieces across the world, then subassemblies are shipped for final assembly to the US inside 747 transport planes, I'd rate it an array project).

Pace: on scale of regular, fast/competitive, time-critical, blitz, the Dreamliner project is fast/competitive--typical of new product introductions.

The "RPM" map, then, would look like this.


Projects of array complexity in particular are subject to delays. As mentioned in the WSJ article, Boeing's extensive use of subcontractors lessens the control it has to respond to issues in the supply chain. (See this prior post for discussion about how outsourcing, regardless of its benefits, lessens direct control.)

But the Dreamliner will be a platform that contributes to Boeing's income for thirty years or more, if the 737 and 747 are any predictors. So on the face of it, a six-month delay is not significant.

What would be significant is if the project management approach that Boeing used differed from the needs of the project. As far as I can determine, Boeing knows what it's doing. The biggest risk would be to rush the plane out prematurely, in which case any operational problems would raise questions about the suitability of the entire platform. Paradoxically, announcing a delay should raise confidence in the project, as it demonstrates that Boeing won't put the plane in the air until it works.

So, a six-month delay is... embarrassing? yes. Costly? yes, in the short run. Long-run significant? No.

project management aviation alliances reading list Wall Street Journal

Fearful of negotiating? Better get over it

Time was, we used to be product developers and manufacturers. We created designs for products, manufacturing groups figured out how to produce them, and we built them in our own factories.

Those days might as well be a million years ago. Now we are systems integrators. We create designs (or concepts we send to ODMs to flesh out), then hire companies to build components, assemble, ship and even service them.

The upshot is that we need a new skillset in this new world. Instead of design skills, we need partnership skills. Instead of building, we are buying. And instead of demanding or ordering, we are negotiating.

It's a much more uncertain world as a result. Outside parties don't necessarily see things our way, and we have limited tools to force them to see our point of view (read this recent Wall Street Journal article to learn more). Instead, we need to understand, to cajole, to threaten when necessary, but most of all to create scenarios where when our partners do what's in their interest, it helps us too.

As a result, I'm very interested in reading "Negotiation Genius" from Deepak Malhotra and Max Bazerman of Harvard Business School. I've discussed some of their work in a previous post. (And here's a recent reference in HBS Working Knowledge.) The book just came across my desk. I'll provide a full report after I'm finished with it.

(Photo from just4you via stock.xchng)

negotiation alliances purchasing HBS Working Knowledge

Young fashion designers show uncommon wisdom in business matters

There are lots of reasons to be impressed by the designers at Proenza Schouler, profiled in today's Wall Street Journal (link - $$). I'm most impressed by their business savvy--specifically how they have been able to grow their business from a self-funded startup yet retain control, a difficult task in the fashion industry.

The group, consisting of designers Jack McCollough and Lazaro Hernandez and CEO Shirley Cook (ages 29, 29, and 27, respectively), has cut a series of deals that stand out for their vision and good sense. I'd also say that the group has been willing to grow more slowly than others in order to maintain control. (In other words, they haven't gotten greedy.) Here are some examples of what they've done to date:

1. Created their first collection with money borrowed from their parents. That collection won a student competition at Parsons School of Design and was bought by Barney's.
2. Created a brand using their mothers' maiden names so that they couldn't lose control of their own names. (Think Joseph Abboud wishes he'd done that?)
   
3. Got venture capital to produce a second collection.
4. Won a contract from Target for a limited-edition collection. Used the Target money to buy out their VC.
5. Most recently, accepted $3.7MM of investment from the Valentino Group for a 45% stake in the company. The Valentino investment gives the group access to more advanced production facilities and Valentino's distribution channels in addition to capital.

These would seem like smart moves for executives twice the age of the Proenza Schouler team. That they could make such wise decisions so early in their careers is truly remarkable.

(Photo: a dress from the Proenza Schouler Resort 2007 collection.)

fashion management investment alliances growth entrepreneurism Wall Street Journal

For a nimbler, more stable alliance, share less

An article in the current Journal of Product Innovation Management starts out with this rather bland statement:

There is wide agreement in analyses of strategic alliances that, regardless of the purpose of the alliance, members of the partner organizations should engage in intensive mutual learning to make the alliance a success.

Sounds good, but so what? Well, the authors go on to show that perhaps this needn't be the case--that a strong product development alliance can exist with much less sharing than previously thought. "Learning to Reduce Interorganization Learning: An Analysis of Structural Product Innovation in Strategic Alliances" (link - $$) by Roman Grunwald of Siemens AG and Alfred Keiser of Mannheim University states that deep person-to-person learning is not a critical success factor if other elements are used instead.

And why would that be helpful? For one, person-to-person learning is time-consuming and expensive. For another, it can destabilize a partnership by teaching one partner enough about the other's business to tempt it to move into the other's turf. This last area is one that I've seen first-hand doom several partnerships, and in thinking about Grunwald's and Keiser's paper, avoiding this could be a significant benefit to a partner strategy.

The authors point out four areas where "Transactive Organizational Learning"--that is, using the knowledge of two companies without sharing it person-to-person--can be employed:

1. Modularization - meaning creating a more distributed architecture for partner innovation. Decomposing the tasks and allowing for more specialization among the partners.
   
2. Storing Knowledge in Artifacts - a partner's contribution to an alliance can be a piece of software or hardware. The other partner doesn't need to know how the artifact works in detail--it needs only to know that it fulfills the requirements and how to connect with it.
   
3. The Rolodex - the authors call it "locating knowledge not available within the team." It means being able to access information that's not directly known by the core product team, whether from alliance partners, customers or others (an important corollary to modularization).
   
4. Prototyping - pulling the above together, creating iterative models of the product, identifying those areas that need more intense collaboration, and focusing learning on those areas only.
   

If alliances can work without "opening the kimono," to use a term, then the partners can worry less about whether one partner is going to use its learning to take business away from the other. (And spend less on product development and get products to market faster.)

innovation product development alliances learning

EDS rebounds thanks to alliances

After EDS was divested by General Motors in the late 1990's, IBM Global Services proceeded to clean its clock in the global outsourcing industry. EDS won a huge contract with the Air Force--hooray!--but soon found itself with a money-losing mess.

One outsider CEO--Dick Brown--came and went. His replacement was Michael Jordan (no, not that one), the guy who had somehow turned Westinghouse into CBS, which he finally sold to Viacom. (It's now CBS again.) The stock price fell from a high of over $70 in 2000 to under $15 in 2002. An EDS shareholder, like I was until a few years ago, wasn't a happy camper.

But something happened in the Jordan era. The company started to crawl back. As Jordan announced his retirement this week, the company's stock was trading near its 52-week high of $29.95.

One clue to the EDS renaissance was revealed in the Wall Street Journal (link - $$). EDS built a tight alliance with a group of leading suppliers and used the alliance to compete with IBM in megadeals (outsourcing deals with more than $1 billion in contract value). The alliance companies--Dell, Sun, Oracle, and others--brought strong horizontal technology capabilities to the table and were eager to compete with IBM for these large deals. And it worked. Writes Jim Carlson in the Journal article:

The alliance is helping EDS to outmaneuver rivals. In 2006, deals involving the alliance accounted for 40% of EDS's $26.5 billion in contract signings. So far this year, alliance-involved deals have accounted for almost half of the signings, say EDS officials.

The article also states that EDS created two centers for the alliance partners to work out of, in Plano, TX, and Auburn Hills, Michigan. Having the partners in the same office allowed the team to be responsive to customers--overcoming a major disadvantage of multi-company alliances.

No strategy is perfect. According to the article, EDS has kicked Dell out of the alliance, presumably for moving too close to EDS' sandbox with new services (another common issue with alliances). But EDS deserves plaudits for tackling a difficult task and making it work.

(Disclosure: I worked for EDS during the early-mid 1990's)

(Photo: "Red Arrows" by jerypank via stock.xchng)

alliances sales outsourcing Wall Street Journal

More problems with Chinese partners

There's another depressing story in today's New York Times on a life-threatening quality problem with Chinese products. Now, it's a tire manufacturer who decided to forgo installing a gum strip inside the tire, an omission that makes the tire more likely to fail on the road, the tires' US distributor, Foreign Tire Sales, announced yesterday. The US National Highway Traffic Safety Administration is demanding a recall. Writes the Times:

...In September 2006, the Chinese manufacturer, Hangzhou Zhongce Rubber, a former state-owned company based in eastern China, acknowledged that a gum strip that prevents the tread from separating was left out of the manufacturing process.

It brings to my mind a question of alliances. If my business depended on an alliance with a Chinese manufacturer, I would be very nervous. Because there is growing anecdotal evidence that faraway partners are willing to cut corners without regard for the impact of those cuts on the end-user.

Which means those partners can't be trusted. While alliances are full of mistrust (am I getting paid what I'm owed? Is my partner selling my product as hard as he should? etc.) at their core is a profound trust--that the product works to its specifications and is of acceptable quality in the market in which it is to be sold.

Because when you sell someone else's product, you do so because you don't have (or don't choose to have) the capability, experience or resources to do it yourself.

(Think of what would happen if I sent this blog to be translated into the Czech language by a company in the Czech Republic. I don't know Czech, and would be reliant on them to do a proper translation.)

And without trust, these relationships are doomed. We can't inspect every tire, can we, to make sure the gum strip is installed? But if Hangzhou Zhongce Rubber, or the company that added an antifreeze ingredient to the toothpaste, or the companies that made the tainted pet-food ingredient, feel free to implement that little change that makes the product at least substandard, or even a danger to its users, you simply can't do business with them.

Foreign Tire Sales will likely go bankrupt as a result of the tire recall. Let's hope their replacement selects better partners.

manufacturing private label China New York Times alliances

What's really interesting about the iPhone

It's finally coming out this Friday. Instead of just reading about the iPhone, we can try it.

Lost in all the hoopla is what the iPhone can do for us, the end-users. It's a GSM phone, plus a video iPod, plus a touch-screen. But what's most interesting from my perspective is how the iPhone is the first US mobile phone that has a full-featured browser and allows unfettered access (thanks to Apple's insistence and AT&T's consent) to internet sites. Prior attempts have been hampered by small displays, poor data-entry capability, the tyranny of the operators' walled gardens, or all three.

As of Friday, the mobile internet will be unleashed. What will it be like? How will we use it?

(Photo courtesy of Apple)

mobile handsets iPhone product management alliances wireless