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Several weeks ago I attended the Open Innovation Summit in Orlando, Florida. You can read a transcript of live Twitter coverage from that conference here, and two very good wrap-up posts from Braden Kelley at Blogging Innovation here and here.

While at that conference I got the chance to meet and speak with Ric Merrifield, business architect at Microsoft and author of Re-Think: A Business Manifesto for Cutting Costs and Boosting Innovation. I had interviewed Ric by phone back in the summer when the book came out, and meeting him reminded me to dust off the interview and publish it. He has a lot of interesting things to say to innovators, particularly about questioning assumptions. Here's the interview:

Q. Tell me about Re-Think.

A. The unifying principle of Rethink is the fairly simple notion that companies are so attached to “how” they go about doing everything from day-to-day activities to work that it can be very difficult for them to see really obvious opportunities for changing something, whether it’s innovation or cost-cutting or what have you. So, for example, they associate the route they take to their favorite restaurant – how they get there – with the outcome of arriving on time. So much so, that when somebody drives a different way, they say well, why are we going this way? But it usually doesn’t matter how you get there as long as you get there on time.

So framing it that way is a totally human condition. If you walk up to somebody at the fax machine and ask them what they’re doing, they’ll probably look at you a little funny and say “Well, I’m sending a fax.” And if you use conventional productivity tools and analysis you’ll often say, “Is sending a fax part of a necessary workflow or step in your job that you have to do to accomplish whatever it is you’re trying to accomplish,” and they’ll probably say yes. So if you’re doing a business requirements document, you’ll write down that sending a fax is a necessary step for whatever function that person does.

Whereas, I would go in and, not knowing anything about the industry, I can say definitively that sending a fax is not the requirement. The requirement is going to be more like “communicating the status of something” or “confirming an order.” If you then go back and say, “OK. What you’re doing is either communicating a status or confirming an order, or something along those lines,” and have a discussion about exactly THAT what, and note that HOW the person is doing it today is with a fax machine. The person will say “oh, OK, that makes sense.”

And what you’ve done there is disentangle this “what” from the “how” in a way that’s very non-threatening to the end user. I don’t know anything about their business, but I’ve led them to open up this opportunity to separate the “what” from the “how,” and then asked the question, “Is it really relevant to use the fax machine? Could you use email, could you automate it, could you outsource it?” All of those “how” questions could then emerge, and from there we can get into more value discussions, such as, “what would be the value to you of doing this differently? Is one of our competitors doing this so differently from us that maybe we should think about innovating in it?” And it goes from there.

Q: So I want to go back to the part where you get the people to focus on the “what” rather than the “how.” You did that by essentially asking them what they were trying to do. Does that work?

A. It does, as long as you can get to the “what” discussion quickly. It’s more important to start to get into the value and performance discussions, so you can find out where it makes sense to ask cost-cutting questions, outsourcing questions, innovation questions, which will also obviously inform strategy. “How” verbs have a very common thread to them, like faxing, emailing, phone, truck, all those things are what I call “trap” verbs. The “untrap” verbs, which are more like communicate, confirm, are lighter weight and don’t have any of the “how” baggage.

Another example: checking in at the airport is really encumbered with some language that doesn’t add any value in the sense that you’re talking about airlines and airports. The three “whats” really going on there are confirming an order, completing a survey, and doing some logistics if you’ve got luggage. When you sort of open that up, you go, wow, if we’re really looking at reservation surveys and logistics, you can look across a whole range of industries for best practices and best process steps and different technology opportunities, whereas you get a much, much narrower focus if you start by saying, let’s look within the airline industry for best practices. Which is not necessarily going to give you bad answers, but it can be really limiting. If something like innovation is what you need to do, a lot of the best innovations come from other industries and seemingly improbable places. Stripping this “how” language away makes it a lot more obvious.

Q. Can you say more about using this approach to innovate?

A. A lot of people don’t have a definition of innovation, but just throw the word around like everybody knows what it means. Innovation to me is changing something so radically that it doesn’t resemble what it was before. So, Netflix has an innovative marketing model for renting videos. They don’t have a store, anymore. The videos come through the mail, there are no late fees, all kinds of really innovative ways for people to have the video rental experience. Innovation can happen at the operating model level, in the case of Netflix, or at the very tactical level, like outsourcing the bank teller in the case of the ATM. That was really innovative. That’s a pretty tactical thing in the retail banking world. Same thing is true of airport check-in.

Nobody has something like continuous improvement on their to-do list in a given day. It’s not something you can check off. Innovation’s different in the sense that every time you evaluate a piece of work you should say, let’s look at it. What is the problem or opportunity? Is it too expensive, do we need to cut costs, and if so maybe innovation is a way to do that. I think a lot of people make the mistake of seeing cost-cutting and innovation as mutually exclusive. That’s a huge mistake because a lot of the biggest opportunities for cost-cutting *are* innovation. Again, it’s the “how are we going to get there?” discussion. If it’s innovation, what does that mean to us and how different does it need to be to accomplish the outcome that we need to get to? Either from competitive pressure, a response to competition, or acting on an opportunity that’s untapped at this point.

Q. So you’re looking at creating efficiencies, but you’re also looking at spotting opportunities.

A. Right. It’s “what outcome do we want to achieve overall?” And, does that require a minor modification in day-to-day operations to get to that, or does it require a radical shift in the work that will be innovative that would be so different than what was there before that we won’t recognize it? I talk about ING Direct in the book as having some great innovations. The fact that they eliminate the ability to write paper checks eliminates the entire department that handles bad checks. So that whole cost is gone in their model.

Q. So nowadays people are primarily focused on cost-cutting it seems, and your Rethink method is a definite way to do that. Where do people go wrong when they start cutting costs?

A. Especially today they’re going wrong in some big ways. One I’ve mentioned already is they think about cost-cutting and innovation as mutually exclusive, which is a big mistake. A second is that so many people have been in growth mode for so long that the muscles we’ve built up have been in keeping up with the growth of the business and we’ve sort of here and there done some cost-cutting, but have been too busy chopping wood to stop and sharpen our axe. We’ve allowed or been tolerant of a certain amount of fat and inefficiency to grow in our models just because we’re so busy keeping up we can’t also do this cost-cutting. When people go into it now they think, oh we can do some nip-and-tuck sort of cutting. But there’s so much fat that’s grown in organizations. Twenty to 40 percent of the operating budget is fat, either from unnecessarily repetitive and redundant processes or just unnecessary work. I tell people to expect to find that level of cost-cutting as an opportunity. If they’re not then they’re probably looking at it the wrong way.

The other piece that in this specific situation as we see organizations retracting and seeing flat growth at best, what that means is that instead of being in this growth mode where you’re trying to attract as many different segments of customers as you can, and you’re sort of trying to be all things to all people, organizations have to decide who is and is not their most valuable customer. And to do that you have to turn your back on some customers. That really means the management team has to sit down and say, who are we, what is our brand and identity, and how are we going to Lego-block that to a specific set of customers.
 

While Time magazine dubbed the first decade of the 21st century the "decade from hell," it has been a great time of innovation. The continued growth of the Internet powered new models, such as Google's contextual advertising and Facebook's social networking platform. Old line companies like IBM, Dow Corning, and Procter & Gamble showed that old dogs can learn new tricks. Companies from markets like India and China entered the world stage. And a computer company with a piddling $3 billion market capitalization at the start of the decade (Apple) has undergone a remarkable transformation.

In the face of all of this change, one question I have been pondering is: Who is the "Disruptor of the Decade"?

So I've decided to enlist your help. We have set up a very short survey to get user nominations for companies that did the best job of driving growth through disruption —: transforming what exists or creating what doesn't through simplicity, convenience, affordability, and accessibility. I'll short list the most popular nominations and turn to the community and a select group of experts to crown a winner.

So click here to cast your vote, and let's see what happens.

Read the rest at Scott's Havard Management blog, Innovation Insights.

Scott D. Anthony's The Silver Lining: An Innovation Playbook for Uncertain Times, has made a number of "best of" lists for 2009. So far the book has appeared on Business Week's "Best Innovation and Design Books 2009" list and on Hudson Booksellers "Best Books of 2009." The book was also a finalist in the Business category for USA Book News and was one of CIO Insight's "Best IT Business Books of 2009." Congratulations, Scott!

This week world leaders at the United Nations Climate Change Conference in Copenhagen are discussing possibilities and solutions for the problems posed by climate change. Innosight's Mark W. Johnson and Josh Suskewicz, whose recent "Harvard Business Review" article explored the ways in which systems-level innovation could help the clean-tech industry develop more quickly, have applied some of that same thinking to climate change. Their idea is presented in our lead article: The U.S. should build a “green city” somewhere in the Midwest, a systems-level experiment in innovation similar to Masdar, currently being built in Abu Dhabi.

In this issue we also feature another Mark W. Johnson article, this one focused on the ideas in his upcoming book, Seizing the White Space: Business Model Innovation for Growth and Renewal. Johnson discusses why business model innovation is critical to master, and why some companies won't be able to master it.

Also featured is a lighter piece from Julia Silverman, applying the lessons she learned as an Innosight intern to her startup venture, sOccket. Here is an excerpt:

My time as an intern at Innosight this past summer was uniquely illuminating, since I myself am an entrepreneur. I have been working for the past year with a team of four Harvard undergrads to develop a business around a portable generator device called the sOccket. It’s a soccer ball with a little something extra: the capacity to harness the kinetic energy from game play for later use as electrical power. An outlet lies flush with the ball’s surface so that users can plug appliances directly into the ball.

The sOccket is aimed at the developing world where electricity is unreliable, if not totally absent. So, before I even knew what “disruptive innovation” really meant, our sOccket team was already gunning to serve nonconsumers – those who don’t have financial or logistical access to even the most basic version of a product.

From the Innoblog, Innosight's Krystin Stafford discusses what it takes for companies to effectively "borrow" a successful business model and apply it to another industry in "It's like Netflix for..."

This article was co-written by Josh Suskewicz.

The conversation at the Copenhagen climate conference is all about policy. But regulation won't stop global warming by itself. Nor will simply spending money on clean technologies. In the US, President Obama has earmarked a half billion dollars of initial funding for a breathtaking array of renewable technologies. This looks like bold action, but it isn't nearly bold enough. We need to be thinking on a far, far grander scale. With its financial and intellectual resources, the U.S. needs to lead this charge. But instead of backing individual technologies, the country should build a whole city of technologies.

What if we were to go into an area of our country that's seriously in need of reinvention — the Midwest — and build a city that would offer a living, breathing opportunity to create an entire clean-tech infrastructure? That's not nearly as utopian as it sounds. Here's why.

Moving from an oil-based economy to one fueled by sustainable, clean power requires more than a technology shift. It requires an infrastructure shift — a concept we explored in a recent Harvard Business Review article. Technologies don't replace technologies — systems replace systems. Fossil-fuel powered transport isn't a technology; it's a system comprising countless interconnected businesses (and business models), markets, government policies, and, yes, technologies. Replacing gas-powered cars with electric ones isn't a matter of simply swapping in new engines. It requires building the entire system that will make electric transport economically viable. Entrepreneur Shai Agassi is, at this very moment, building a comprehensive electric-vehicle infrastructure in Israel that encompasses not just the cars but the charging stations and cutting-edge power management grids and software such an infrastructure requires — a system.

Back to the green city. In the United Arab Emirates, the government of Abu Dhabi is building a clean-tech system of its own: Masdar. It's a city entirely powered by sustainable technologies, and it's their effort to create the Silicon Valley of clean tech. Masdar is being built on government-donated land, bolstered by business-friendly tax incentives and buoyed by $15 billion in government funds. It is slated to complete its first neighborhood by year's end, which will be anchored by a clean tech-focused university that just launched its inaugural class. The first commercial tenants are set to arrive in 2012; General Electric has already signed up.

In the scheme of things, $15 billion isn't an outrageous amount for a government to pony up to launch what figures to be one of the primary industries of the 21st century. Indeed, the Obama administration has pledged more than $100 billion to clean tech efforts; China, which is also making its own forays into eco-cities, is spending $200 billion; and the G20 industrialized nations have pledged upwards of a combined $400 billion.

The U.S. should take a small chunk that $100 billion and apply it to a Masdar-like
effort of its own. Imagine what a focused, coordinated effort among the government, private sector, and academic institutions could do. Rather than build from scratch, the government could use this grand-scale opportunity to revive a declining industrial city. What if the U.S. set up a smaller version of Masdar in the Midwest, say within Detroit, with the aim of creating its own Silicon Valley of clean tech?

Read the rest at the Havard Business Conversation Starters blog.

Last Wednesday my wife and I were picking up a drink in Starbucks before boarding our plane to Washington D.C. to visit my parents. "Your parents always have such bad coffee," my wife said. "Why don't you buy some Via?"

For those who don't know, Via is Starbucks' recently launched brand of instant coffee. A three-pack of Via costs about $3, and a 12-pack costs $10. Via is available at Starbucks stores and online.

The company allegedly spent more than two decades developing Via, focusing on creating instant coffee with a taste profile that at least reasonably approximates in-store coffee. CEO Howard Shultz said, "We took a lot of time with it because we knew it could undermine the company if we didn't do it right."

The product's name pays homage to researcher Don Valencia who began the Via quest but passed away before its completion.

I wouldn't say that Via was as good as a cup of coffee brewed at Starbucks (and truth be told, I prefer Dunkin' Donuts coffee anyway). But in classic disruptive fashion, Via delighted me by substantially out-performing the other options available in my parents' house. It is a great example of a company finding a powerful way to "love the low end."

There are three specific things to like about Starbucks' approach:

1. Starbucks consciously built an affordable solution. Via is substantially cheaper than buying a cup of coffee brewed in Starbucks (though it is more expensive than other instant coffees).
2. Via enables Starbucks to bring consumption to new contexts. I am now going to buy Via to stick in my briefcase so I can enjoy it in hotel rooms or other contexts where good coffee isn't available.
3. By offering Via within its stores, the company isn't shying away from the potential conflicts that low-end loving approaches can encounter. While there is some risk that Via will cannibalize higher-margin items, it is more likely that by attracting nonconsumers ̬ Starbucks fans who don't regularly buy instant coffee — will lead to consumers spending more money in aggregate on Starbucks products.

Loving the low end isn't easy. A recent article in BusinessWeek highlighted how some baristas are balking at pushing Via. You see, Starbucks has such high hopes for Via — instant coffee is a $21 billion market after all — that it is pushing aggressive sales tactics that some feel run counter to the Starbucks "vibe."

Read the rest at Scott's Havard Management blog, Innovation Insights.

A recent Economic Times story detailed IBM's new "spoken Web" technology, which will allow users to browse the Internet and access information by speaking in their local language without having to type or otherwise use the computer keyboard. An IBM India lab is currently developing the technology and performing real-world tests with rural dairy farmers in India. The idea is that if IBM can remove barriers to accessing its enterprise resource planning technology, Big Blue may be able to unlock a large market selling ERP software to companies that source dairy and other foodstuffs from rural Indian farmers.

This sounds like a technology problem. After all, using technology to create the opportunity to sell to nonconsumers — that is, people who have been totally shut out of a market — is a classic way to build substantial new growth. But in reality, this is a business challenge.

To crack this nut, the technology needs to be delivered to market with the appropriate business model — and there's no guarantee that the right business model is the one IBM is currently using. The business problem confronting IBM, then, is whether it needs a different model to realize this opportunity. If so, IBM must figure out a way to seize what I call its "white space beyond" — that is, its opportunity to open up an entirely new market with an entirely new business model.

IBM has done this before many times, having successfully moved, for example, from the leasing model it used to sell its fabulously costly mainframes in the 1960s to a purchase model for its lower-end mainframes and minicomputers in the 1970s, and — far more radically — to a retail model for its personal computers in the 1980s.

IBM took a lot of flack for being something of a technology laggard in the PC market, preferring to be a fast follower; it didn't get nearly enough credit for being on the cutting edge of business model innovation.

Here was a company that owned more than half the computer market setting up a renegade operation in Florida full of young employees in polo shirts (far from its headquarters in cold, formal, famously white-collar Armonk, New York), building what Ken Olsen, CEO of then-number-two computer maker Digital Equipment Corporation, thought of as little — and unprofitable — toy computers.

But IBM understood that this new technology could be profitable if the company developed an innovative business model to go along with it — one that offset the radically smaller profit margins with much greater volume, generated through a lower cost, retail sales channel. For both DEC and IBM, the PC represented a tremendous growth opportunity, but only IBM understood that the real challenge was business model innovation, not technological innovation. And where is DEC now?

As we come out of the Great Recession facing the possibility of permanently lower demand in the credit-deflated West and look for growth to the millions of nonconsumers in India, China, and the rest of the developing world, I would argue that every multinational finds itself in the same position as IBM was in 1980. That is, every company needs to ask itself: Can I reap those opportunities with my current business model?

I'll go out on a limb here and predict that for most western multinationals, the answer will be no. Developing economies will not support the margins that most of their current business models require. These opportunities will be squarely in their white space beyond.

The question is, Will they be just "beyond" these companies' markets — or will they also be beyond their imaginations?

Read the rest at the Havard Business Conversation Starters blog.

Even non-football fans probably heard about Bill Belichick's "blunder" of a call on Sunday night. Believe it or not, the call — and the firestorm that followed — has important lessons for innovation managers.

A quick recap. The New England Patriots led the Indianapolis Colts by six points with two minutes to go. It was fourth down, the ball was on the New England 28 yard line, and the Patriots needed just two yards for a first down that would almost certainly have sealed a victory. Conventional wisdom called for a punt, but Coach Belichick decided to go for it. After the Patriots fell just short of the first down, the Colts marched into the end zone and won the game.

Reaction was swift and almost universally negative.

But there's statistical evidence that Belichick followed the right approach, that his move marginally increased the odds that the Patriots would win the game. Of course, the Patriots didn't win the game, but had the situation played out hundreds of times, a coach using Belichick's tactics would win more frequently than one who didn't.

What does this have to do with innovation?

First, the "Belichick incident" highlights the challenges facing a leader who makes the hard, right choices.

If Belichick had punted and the Patriots lost, no one would have complained. Following a seemingly non-conventional approach opened Belichick up to criticism. Successful innovation requires similar bravery. It isn't easy to go after non-existent markets or follow non-obvious approaches when analysts and investors are grilling you over minute-by-minute results. After all, naysayers tend not to criticize risks you don't take.

The other important implication relates to rewards. People moaned about Belichick's decision because the result was negative. Just like companies reward people who hit their numbers and penalize those who don't.

Read the rest at Scott's Havard Management blog, Innovation Insights.

Last week I was riding through the bustling streets of Bangalore when my colleague made a provocative statement: "I think the Tata Nano is going to be a flop."

It was a strong statement coming from an Innosighter. After all, we have been talking about the disruptive potential of the "people's car" — priced as low as $2,000 — for years.

"But look around," I said. "That family will surely flock to an affordable car that projects social status and provides a safe, comfortable ride."

I pointed to the husband, wife, and two children who were precariously perched on a scooter zooming in between cars to make my point. Even as I did so, though, I could begin to sense where my colleague was heading.

Anyone who has driven in India knows there is a remarkable efficiency on her chaotic streets. Every square inch of road gets used as scooters sneak in between gaps between cars. Dangerous? Sure. But it maximizes people per square mile in a way that boxy automobiles never could. Turning all of those scooters into Nanos would create a traffic nightmare.

"Here's the thing," my colleague said. "These consumers could already get a reasonable used car for the price of a Nano. And they choose not to."

He went on to detail how in the late 1990s he bought a used Maruti 800 for about Rs 1,05,000 (about $2,250). The car had features the base Nano lacks like a cassette player and air conditioning. He sold it in 2001 for Rs. 95,000 (or about $2,000).

"Most of the Nanos are being purchased as second cars or by the upwardly mobile that want to show off, "my colleague said. "People aren't buying the basic version .They are buying an upgraded version with air con and power windows. The Nano might do ok, but that's no 'people's car'."

Read the rest at Scott's Havard Management blog, Innovation Insights.