The last stage in the development of a business model, our CEO Mark Johnson writes in his recent book Seizing the White Space, is the evolution of a company’s business rules, success metrics, and behavioral norms, which, he says, “connect the elements of a business model and keep the system in proper balance.” In many industries, a company’s rules (“employees must wear the company polo w/ black slacks during working hours”) and metrics (“employees shall be compensated at 20% commission for all sales beyond $x-amount”) are fairly easy to identify and articulate.

Norms, on the other hand, are far more implicit, and often executives and employees do not recognize the impact they have on the business. Explicitly examining the norms that a company currently takes for granted can unlock the full potential of business model innovation.

Understanding where norms come from helps to clarify what they are. For every key process in a business model, there are a number of sub-processes. For example, the key process “hiring and training” can be subdivided into “resume screening,” “interviewing,” “extending an offer,” etc. At some sub-level, defining a process becomes pedantic and useless. At this level, the process can be approached in many different ways, though over time patterns of behavior emerge as ingrained actions that simply become “the way things are done.”

Anyone who has been “the new guy” at a company can attest to the rate at which norms are spread by word of mouth. Examining them is important because while all employees work through processes in some way, often this is not the optimal way. Suboptimal norms (relative to the purpose of the business model) often arise as behaviors that compensate for immediate constraints in either resources or knowledge.

A good example of this is the general layout of office workers (think of the TV-series The Office): Until the late 1990s, a common white-collar norm was to work at a desk using the office landline phone and a desktop computer, all day, every day. The lack of mobile phones and portable laptops made any other arrangement difficult, even though being stationed in a single location was often not ideal for either productivity or job satisfaction. Slowly, more liberating working norms have emerged at many companies, as resources like online communication, wireless handheld devices, and Bluetooth headsets allow for greater flexibility and more efficient freedom of movement. And yet, look around your office. How many landlines do you see on people’s desks? Is the message they send to employees in line with the purpose of your business?

Norms like these, which are rooted not just in a company’s business model but more broadly in the culture of the wider industry or society, are especially hard to identify and manage. But for the insightful manager, the good news is that many constraints to optimizing norms (resources and knowledge, to say nothing of rules and metrics) are highly fungible. Jaguar’s recent IT switch from Microsoft Outlook to Google Apps is a case in point. Not only has this shift saved the company millions of dollars, but it holds the potential to engender a new and powerful set of employee norms, as over 14,500 staff worldwide begin to work with Google Docs, Gmail, and other cloud-based live-document programs.

Wired editor Chris Anderson, ever the eloquent early adopter, probably describes that potential most vividly here in his book Free:

I’m typing these words on a $250 “netbook” computer, which is the fastest growing new category of laptop. The operating system happens to be a version of free Linux, although it doesn’t matter since I don’t run any programs but the free Firefox Web browser. I’m not using Microsoft Word, but rather free Google Docs, which has the advantage of making my drafts available to me wherever I am, and I don’t have to worry about backing them up since Google takes care of that for me. Everything else I do on this computer is free, from my email to my Twitter feeds. Even the wireless access is free, thanks to the coffee shop I’m sitting in.

Not all business models will call for Anderson’s working norms (using unsecured wireless networks may not be a good idea for financial services folks, for instance), but an important (and actionable!) part of optimizing norms for your business model is to consistently remove resource constraints, as well as educate your people on the best use of available resources.

For those of you who don't remember the story, the sneetches (yellow characters that vaguely resemble ostriches) start the book as a divided crowd. One group of sneetches has stars on their stomachs. They consider themselves superior to the sneetches without "stars upon thars." Then Sylvester McMonkey McBean arrives with a machine that can put a star on a sneetch's chest. Much to the star-bellied sneetches dismay, the non-starred sneetches go through the procedure. Then, of course, the star isn't special anymore, so McBean unveils a star removal machine. Hilarity ensues.

By the end of the book, the sneetches have all lost their money but can no longer remember who had a star and who didn't. The story carries obvious lessons about the dangers of conformity, and upon basing social status on silly, superficial things.

But what the heck does this have to do with innovation?

First, when you are setting up innovation groups, you have to avoid simply putting "stars upon thars." Sometimes members of these groups begin preening, thinking they are the chosen ones within the organization. As Vijay Govindarajan and Chris Trimble point out their new book The Other Side of Innovation, the resentment that typically follows is dangerous because innovation success almost always requires support from the base business (who of course provides the money to make innovation happen).

Read the rest at Scott's Havard Business Review blog.

Back in 2006 and 2007 my colleague Scott Anthony argued that Nintendo’s Wii would be a disruptive innovation that could catch Sony and Microsoft off-guard. And it did: Wii sales figures soared in the following years. In 2008 and 2009, for instance, Nintendo sold more consoles in North America than Microsoft and Sony did with their respective consoles combined.

The core of the argument was that Nintendo’s strategy of “competing against non-consumption” would allow it to fly under the radar of Microsoft and Sony, which were engaging in an arms race to provide ever better-looking games to their most-demanding consumers at premium prices. And that is exactly what happened.

But now that Nintendo’s innovation appears to have passed the peak of its life cycle and the media is turning its attention to the next generation of consoles, one might wonder about what comes next.

Interestingly, Nintendo’s recipe for short- to mid-term success might play out in a way that also helps its competitors in the long run.

Nintendo made the use of consoles and interaction with video games simple and intuitive. That enabled millions of individuals worldwide to overcome a key barrier to consumption, thus dramatically broadening the market. But the Wii’s high-profile success made Nintendo’s strategy impossible to ignore, and Microsoft and Sony responded by replicating some of its key elements, such as the intuitive motion-sensing game controller (Microsoft Kinect, Sony PlayStation Move).

Legions of Nintendo consumers, having overcome the skill-based barrier to consumption, are now conceivably in the market for products with even more intuitive controls, improved graphics, better online experience, and so on. Leaving brand effects aside, the next generation of consoles from all three companies might thus be much better substitutes for one another than the current generation is. So while Nintendo has made a fortune with its disruptive innovation, it also essentially did significant market development work that all players could profit from in the future.

What can Nintendo do to navigate this market development trap? Principal options include moving up the sustaining curve to fight more fiercely against Sony and Microsoft or continuing to compete against non-consumption.

For a successful march up-market Nintendo would need to improve the performance of its next-generation offering along the performance dimensions it introduced – intuitive control and equally intuitive gameplay. That might not be enough to combat Microsoft and Sony. Microsoft, for instance, has established a partnership with Netflix to boost the attractiveness of its current offering that it will likely carry on to its next-generation console, since it already helps keeping Xbox 360 sales numbers up. Without systemic changes to the traditional business model of the industry by the disruptor, there is considerable room for its high-end competitors to attack.

Continuing to compete against non-consumption, on the other hand, could be a very attractive strategy for Nintendo. The company already has brought simple gaming to new contexts in developed world with its DS handset (which is following its own improvement trajectory, adding on 3-D functionality and other advantages).

Addressing non-consumers with simpler solutions creates competitive advantage that can be sustainable for a considerable period. The Wii had caught its competitors by surprise: It took three full years in the fast-paced world of consumer electronics for Microsoft and Sony to adapt their game controllers to make their games more intuitive, something which had at first glance seemed straightforward.

What’s more, targeting non-consumers typically expands the market base. By continuing to “democratize” the video gaming market, Nintendo might be able to repeatedly create new growth markets. Wii Fit was already a good follow-up move to attract young women (historically video-gaming non-consumers). Where could Nintendo look next? How about the billions of people worldwide who cannot afford a Wii, its games, or TV sets, or do not have access to a continuous electric power supply? Framed in the right way, that is, by continuing to make distinct cost/performance tradeoffs and rethinking interactivity – both capabilities that Nintendo has already shown it can master – there could be lots of great growth opportunities here.

Three insights Nintendo’s story might offer:

• Simplicity can be a really powerful means of disruption when targeting non-consumers. It is typically unattractive for market incumbents to lower the performance of their offering along traditional dimensions to compete for non-consumers right away because this would not meet the demands of existing consumers. So it can take a while for the incumbents to realize and incorporate the newly introduced performance dimensions in a way that does not alienate their core consumer base. In the meantime, the disruptive innovation can outsell its competition.

• It’s crucial to keep thinking about what comes next. The best disruptors are also the best sustainers. Imagine what would have happened if Apple, for instance, had stopped with its first-generation iPod! Companies that disrupt sustaining players by overcoming skill-based barriers to consumption need to recognize that the converted consumers will be amenable to sustaining offerings by competitors in the future – the market development trap. If a disruptor is not able to induce incumbents to exit the market, it will need to explore its ability to either engage head-on in a sustaining competition or disrupt the market anew since its impressive returns will attract competition. It’s crucial to keep thinking about what the source of sustainable competitive advantage is that will allow the disruptor to fend off the inevitable competitive counterattack.

• The market development trap is not so much a threat as it is an opportunity. Competing against non-consumption can become a self-renewing cycle that a company can commit itself to over the long term. To get – and stay – ahead of the competition, the trick is master the tin challenges of continually improving and expanding the disruptive “base” while also tackling new circumstances of non-consumption.

Nobody said that being a disruptor would be easy. Nintendo shows how a disruptive strategy can pay off handsomely, but also illustrates that in highly competitive markets competitive advantage is a transient notion.

This blog post was featured in the Harvard Business Review.

After I got through customs, it hit me. I hadn't picked my phone back up (I use my U.S.-based BlackBerry when out of Singapore to avoid the ridiculous roaming bills you get with iPhones). Singapore Airlines of course handled the situation beautifully — letting me go back on the plane to look for my phone. But it was gone.

The 18 hours in Singapore without my iPhone made me realize how much I like it. But it's not because of how the iPhone makes or receives calls. It's all the little use occasions, like checking my MLB app on the bus ride (I usually catch the second inning of East Coast baseball games), reading a book on my Kindle app on the subway ride, or finding out how to get to my meeting once I got off the subway in an unfamiliar location.

It would be an exaggeration to say I was lost without the phone, but I could palpably feel its absence. Contrast that to my Flip video camera. I think Flip (now owned by Cisco) makes good, useful products. But when I forgot my camera on a recent trip, I shrugged my shoulders, turned on my phone, and used it to take a more-than-good-enough video.

I've talked before about how you can't really know for sure whether you are working on a good idea until someone actually pays something to purchase your idea. For some ideas, payment isn't enough. You need someone to use your idea, fall in love with your idea, become reliant on your idea, and tell their friends about your idea.

So how do you know that your idea could pass that love/reliance test?

Read the rest at Scott's Havard Business Review blog.

Intrigued, I logged on to Hunch.com to see what’s so special about this Web site that propels Internet users to divulge such a huge amount of personal information. Thirty minutes later, against my better judgment, I’d answered 131 seemingly random “Teach Hunch About You” questions, which was a surprisingly therapeutic process. Yes, I can change a lightbulb, and no, I don’t know how to tie a bow tie.

In theory, these questions will enable Hunch.com to understand my personality, tastes, and preferences. That way, when I ask Hunch.com a question later on, it could combine my profile data with my responses to topic-specific quizzes created and edited by other users in order to narrow down to the answers.

Having tried a few questions, what I realize is that for subjective topics like “Where should I move?” and “Should I get married?” Hunch.com’s advice is probably more precise than a Magic 8 Ball or a bad therapist. However, when it comes to product research, like when I asked what car I should buy, Hunch.com’s recommendations were hit-and-miss.

Hunch.com’s predictive power is still a long way from perfection. However, its approach of instantly customizing recommendations by asking customers about their needs and wants is refreshingly different from how e-commerce sites work today.

The common shortfall of such sites is that they only allow users to search for products based on functional attributes. For example, on Amazon.com, laptop computers can be filtered by brand, processor type, display size, hard disk size, and price. It presumes that consumers already have some basic ideas of what solution they need for the job they need to get done.

This is very different from how salespeople make recommendations in retail stores. Imagine yourself walking into an electronics store to buy a laptop. The first thing a good salesperson would ask probably won’t be about CPU or display size. He or she would probe you on your jobs and circumstances: Will you carry it around frequently? Will you use it for video gaming? The salesperson could then deduce from this information which laptop best matches your jobs.

It’s about time that e-commerce sites incorporate this jobs-to-be-done approach in making recommendations to their customers. Using online decision support tools that gather information on customer jobs and circumstances -- similar to what Hunch.com has developed -- e-commerce sites could help consumers quickly identify the right products and ultimately drive sales. Knowing more about customers’ jobs-to-be-done would allow companies to cross-sell more effectively, giving them the information they need to go beyond a single-product sale to propose a total solution that could help customers achieve their goals. The insight data collected from the decision support tool could also be tied back to purchase and abandoned-cart data, which may shed light on customers’ unmet jobs and innovation opportunities.

To implement an online recommendation tool like Hunch.com’s, e-commerce companies will need to understand customers’ potential jobs and their decision logic (that is, how they make trade-offs between alternatives under different circumstances), and then continually update the program as new products are launched. This is no easy task, but considering the high click-through rate (20%) that Hunch.com has managed to achieve with its online recommendation approach, the investment may well pay for itself.

What did I mean? An individual diver's scores for an event are a factor of two things: how well they execute their dive, and the "degree of difficulty" of their selected dive. The more twists and turns you have, the more points you can earn.

You don't get points for degree of difficulty for innovation. You get points for producing profits. Sometimes you do have to take higher risk, more uncertain approaches to produce those profits. But the goal isn't making things any more difficult than they need to be. The goal is to find the quickest, cheapest path to profits. If that involves imitation, then so be it.

My diving quip was an homage to Michael Lewis's book on baseball, Moneyball. It describes how the Oakland Athletics exploited market inefficiencies to compete against baseball teams with more financial resources. Early in the book there was a discussion between A's general manager Billy Beane and his team of scouts. They were discussing a prospect, a University of Alabama catcher named Jeremy Brown. The scouts didn't like Brown, pointing to his "soft body" and "low energy." Beane's analytical team loved Brown, citing some of his performance statistics. A debate ensued. Beane shut discussion down with a succinct phrase that summarized his organizational philosophy: "We're not selling jeans here." Brown became the 35th overall selection in the amateur draft.

Beane's point was that he didn't care about a player's physical attributes; he cared about whether the player would perform. And his philosophy was that statistics provided a better way to identify high performers than a player's physique or mental makeup. In this case, the scouts might have had a point — Brown ended up with a grand total of 11 major league plate appearances (where he did bang out two doubles and a single). Nonetheless, Beane's admonition is a useful reminder that innovation leaders should make sure they are asking the right questions and focusing on the right variables.

I generally ask five questions to determine whether an innovator has the seeds of a transformational idea:

1.Is there an important problem that customers can't address because existing solutions are expensive or inconvenient? In Innosight's parlance, is there a high-potential "job to be done"?
2.Is there a disruptive way to solve the problem in a simpler, more convenient, or more affordable way?
3.Is there a plausible hypothesis about an economically attractive, scalable business model? I don't need a detailed financial model (because I know it's wrong anyway), but I need a sensible story that's at least conceivable — and a plan to turn that plan into reality.

Read the rest at Scott's Havard Business Review blog.

In this issue, Innosight manager Alex Slawsby reports from the standing-room-only crowd at TEDx Boston on the innovation potential of a social dynamic more powerful than Twitter. Here is an excerpt:

I had the opportunity two weeks ago to attend the TEDx Boston conference, one of the local versions of the main TED conference that takes place every year in Long Beach. This conference was designed to celebrate creativity and innovation in New England and it brought together several hundred folks, ranging from artists to venture capitalists to representatives of major technology companies and consulting firms.

One talk that stood out to me in particular was given by Seth Priebatsch, who was actually an alum from my high school. He founded a company called SCVNGR, which creates mobile apps around game playing, challenges, and treks. His talk was entitled “The Game Layer on Top of the World.”

The Innosight staff offer a glimpse into the sources of their next new ideas in their own unique summer reading list including blogs, business books and much more.

Also, Chairman Mark W. Johnson offers his latest thinking on innovation strategy in the complete version of an article published in a shortened form this month in Leadership Excellence magazine. Here is an excerpt:

Ratan Tata, the CEO of Tata Motors, looked out over a road in New Delhi and saw a fantastic opportunity. Entire families – parents and children – were weaving their way through the traffic perched precariously on a single motorscooter. Clearly, he thought, these families needed a safer way to get around. If his company could produce a four-seater car for something close to the price of that motorscooter, Tata could tap into a vast, pristine new market.

We draw your attention to a bumper crop of posts from the Innoblog, from which we’ve culled two particularly clever innovation success stories to jump-start your thinking: Mobile Banking: Is Disruption Brewing Far from Your Home Market? by Raven Smith and Baby Steps Lead to Impressive Growth for Chinese Start-Up by Curtis Lefrandt.

Read Strategy & Innovation articles here.

Habit is a powerful force in business, as Innosight Chairman Mark Johnson points out in Seizing the White Space. Although every successful company is successful, he explains, because it works according to an effective business model, people seldom stop to think about the model they’re working in. Commonly, employees act out of habits that are “often implicit, arising not as direct imperatives of the model but in response to the business, rules, behavioral norms, and related success metrics that have developed to allow the model to be executed effectively, repeatedly, and efficiently.” And as in golf, when consistency of execution is the goal, strength of habit can be a competitive advantage.

But unlike golf, consistency of execution isn’t always what’s called for. While operating with more speed can be effective for well-practiced tasks in core business operations, Johnson explains how those same impulses are poisonous to new business -- where the executive is essentially a novice in a new domain.

It’s natural to want to do what you’re good at and to keep doing it over and over again to get better and better. While that might work for the pro golfer, today’s ever-changing business landscape demands that managers be ready to adapt to utterly new circumstances. So the next time you do something out of habit, take a moment to see if you’re still playing the same game.

But to pay for this privilege, that’s where this model breaks, right? We’re not that gullible, are we? The success of Build-a-Bear Workshops would say we are, and now GM is betting people will pay for the chance to assemble the engine for their new top-of-the-line Corvette Z06 or ZR1. Crazy? Not at all.

Admittedly, on paper a value proposition that states you are going to increase the cost of a new car by 5% to 8% with no additional features or performance improvements and require the customer to spend a week doing the labor you have already included in the sticker price shouldn’t be viable. And were we considering just the functional needs of the buyer, you would be right. But GM knows that the Corvette (and most exotic cars) represents an emotional purchase for most customers, as obviously there is no practical reason anyone needs 635 horsepower and a 0-60 time of 3.4 seconds.

This isn’t new information, and for years such cars have relied on these emotional cues to justify their price tags, but I think GM has hit upon a new angle with this innovative participatory business model. For people with a sincere passion for automotive performance (not those simply showing off their wealth), part of the joy comes from knowing all about the capabilities of the car and being able to share these insider details with an admiring public as you lean casually against your imposing go-fast machine. For decades, motor heads got this job done on their own by getting their hands dirty under the hood turning reputable rides into hot rods. However, as engines became more complex and electronically controlled, performance enhancements started to resemble systems-integration projects with a generation of “tweakers” simply bolting on turbos and nitrous tanks to small, high-revving import engines.

This trend left some old-school horsepower hogs cold. Many are older and now have the money to buy the performance parts they always craved but lack the time and skill to install them. GM saw an opportunity to delight these frustrated gear heads and introduced a $5,800 “option” that allows them to personally participate in the creation of their 7.0 liter monster. For those so inclined, they can now derive a real sense of personal accomplishment and pride of ownership that transcends a set of keys and a contract to purchase. This is truly “their” Corvette.

Only time will tell if GM’s Tom Sawyer move is a hit, but the cost to experiment is low -- a slight risk to production timelines for these few, hand-built units -- and the potential return is significant – a 5% to 8% price premium with no added cost and heightened customer loyalty.

The interesting thing to me is that this isn't a particularly new perspective. Failure has long been a badge of honor in Silicon Valley; thought leaders like Henry Mitnzberg, Rita McGrath, and Tim Brown note how failure is an essential part of successful innovation. Yet, in most organizations a fear of failure persists.

I've argued that part of this is an incentives problem. Too frequently people reward (or punish) outcomes when they should reward (or punish) behaviors. I suspect another part of the problem is that we just don't have a good way to categorize "failure."

In reality, there are three types of failures that bother me:

1. When someone knowingly does the wrong thing. For example, intentionally hiding negative market research data to get senior management approval for a pet project. This is more common than you might know.
2. When someone could have easily discovered that they were doing the wrong thing. I see this happen in corporations all too frequently, particularly those that are trying to create new revenue streams or use unique go-to-market approaches. The right phone call or the right research could have quickly highlighted a flaw in a plan. But an internal bias led to action without investigation. I remember a couple of years ago counseling a team that had built a seemingly solid plan to sell to academic universities. My guidance was pretty simple — pick up the phone and call some people who had sold to those universities. That simple activity highlighted how the team had a flawed assumption about the speed of the sales cycle. Had the team executed without that simple research it would be a punishable mistake.

Read the rest at Scott's Havard Business Review blog.

Here in Boston (or anywhere else in the developed world), bank branches and ATMs are as plentiful as Starbucks, and it's relatively easy to open a bank account. However, in the developing world, the adage "time is money" could not be truer, when a trip to the nearest local bank branch or ATM can take three hours or more -- hours that could have been used to earn wages.

In the developing world, the challenges of spotty infrastructure and electricity, coupled with radically lower income levels, create an ostensibly unattractive market for many commercial banks. But while less than 10% of the 2.5 billion people in the world who live on less than $2 (U.S.) per day have access to formal financial tools, the number of mobile subscribers in developing countries grew more than five-fold between 2000 and 2005, reaching 1.4 billion. In South Africa and Botswana, one-third of people without bank accounts - many who are poor - own a mobile phone or have access to one. That poses an interesting question: Will the future of personal banking be the mobile phone?

This seems to be the case in Africa. A recently launched savings product in Kenya, "M-Kesho," is the newest child of Vodafone's Mobile Payment Solutions' partnership with Kenya's Equity Bank. It enables Kenyans to transfer wages directly to an interest-bearing savings account through their mobile SMS service. The original Kenyan money transfer service, "M-PESA," is operated by Safaricom, Kenya's largest cell phone operator, in which Vodafone owns a significant stake. Safaricom recently partnered with Equity Bank, the largest commercial bank in Kenya, to launch a new mobile money service that will allow M-PESA customers to access money from the bank's ATM. But that's not the reason why, according to The Economist, some 9.5 million people, or 23% of the population in Kenya, use M-PESA to transfer the equivalent of 11% of the country's GDP each year. It's because not only does M-PESA make it easier for scattered, rural populations to put money into the bank, it makes it almost equally convenient to get their money back out: By registering small retailers as mobile-money agents, M-PESA has garnered some 17,600 customer access points - more than 20 times the number of the country's 840 bank branches.

While the global job that mobile banking satisfies might be said to be "Manage my finances" for pretty much everyone, this kind of innovation has grown so successfully in Kenya because the technology fulfills customers' jobs and objectives and overcomes the barriers unique to this market. Mobile banking enables Kenyan farm laborers to make transfers and deposits from their mobile phones in the field or at home - allowing them to reduce the amount of work time that is lost.

Now, it's easy sitting here in the U.S. to focus on the difference between our objectives and circumstances and overlook the similarities. But the broad forces that have made Vodafone so successful in Kenya -- its focus on removing barriers to an important and unsatisfied consumer job -- can be applied to any market. Perhaps there is something we can learn from this. In an April Harvard Business Review blog, Innosight Chairman Mark Johnson describes how the shortsighted desire to keep transfer fees led U.S. banks to concede the person-to-person money transfer field to the dot-com upstart PayPal. This begs the question of what other important and unsatisfied jobs in the developed world might be exposing the banks to a disruptive threat. As someone who regularly incurs frustrations trying to cheaply and easily send money from my bank account to those of my family members in Canada, for instance, I welcome the day when I might be able to do so with a simple text message for a nominal fee.

This device has all the best traits of a disruptive innovation.

First, it makes performance trade-offs appropriate for the specific circumstances for which it was designed. In this case, the fact that it works without electricity and is incredibly cheap more than makes up for any shortcomings in diagnostic accuracy or ease of use.

Second, it targets nonconsumers – my guess would be most developing country medical clinics have no centrifuge at all. With this in mind it is easy to see why any centrifuge, made of a salad spinner or not, would be very much appreciated.

Third, it flies below the radar of most major competitors in the market. Chances are any diagnostic-company executives who’ve heard about the Sally Centrifuge have had a nice chuckle, but not one will have felt the pangs of anxiety that arise when a fierce new competitor enters the market.

Last, it holds the potential for an “upmarket march” that could eventually allow this fledgling company to enter the mainstream market as it slowly innovates in its out-of-the way foothold market, far from the attention of incumbents. Here we will have to wait and see. It sometimes can take decades, but I can imagine a scenario that would be typical for such a disruptive innovation, which might go something like this:

Kerr and Theis test their product in a few clinics this summer. One of the doctors they work with has a brother who owns a factory in China that makes plastic products. They work with him to create a prototype and get Doctors Without Borders to buy fifty and distribute them to clinics all over the world. They get great feedback. When the donated products eventually break, the pair start receiving orders for replacements, which they price at $40 (earning a 75% profit margin due to low-cost Chinese manufacturing).

They use the money for some R&D, and over time they improve the inner workings of the device dramatically so it now is far more accurate and, by hooking it up to a bicycle, can run a batch of samples in only three minutes. The orders expand dramatically as the Gates Foundation takes notice. They decide to raise their price to $50 (now with 80% margins).

Wider distribution spurs more feedback: It would be great, one of their customers suggests, if you could ride the bike to charge a battery and then use the energy at a later time. Kerr and Theis work with some Rice electrical-engineering graduate students to design this alternative power system and charge $100 per unit for this optional upgrade (at 50% margins). It doesn’t matter that the battery is big and heavy because those are not the dimensions their customers (still those far from reliable energy sources) care about.

After having a few conversations with a friend from college who works at a solar energy company, the two decide to charge their battery through a solar panel – and of course they get a cut of each panel sold through their school chum’s company, which they plow into more R&D. The solar panel option dramatically expands the market, and they sell more than ever. They decide to design a high-capacity model… and so on and so forth.

Over time, it would not be surprising to see our two intrepid inventors offering a plug-in model that’s half the price of their competition and capturing a big chunk of the mainstream market That’s about the time when the diagnostic company execs would wish they had taken the Sally Centrifuge seriously from the start.

In a recent INSEAD interview, the founder shared some of the reasons for Babytree’s success, and one point in particular caught my attention: Wang’s decision to build the business with a “launch many, launch early” approach. This is a core philosophy that Wang picked up during his time at Google Asia, and as a result Babytree has launched more than 40 products since its inception, including blogs, Q&A boards answered by volunteer medical professionals, calendars filled with local events for young mothers and their children based on where they live, and an e-commerce section selling baby products.

This “Google”-esque approach seems very similar to the emergent strategy that we talk about a lot here at Innosight and have written about extensively in The Innovator’s Guide to Growth and more recently in Seizing the White Space. In many ways the opposite of a deliberate strategy, an emergent strategy is the process of vetting critical assumptions by “testing early, testing cheaply, and testing often,” redirecting the venture’s strategy, and even adjusting its business model, according to the lessons learned from these tests. This type of “test-and-learn” strategy is best suited for tackling uncharted industry terrain with highly uncertain market variables because it reduces the risk that is inherent in launching these new ventures.

One of the shining stars of Babytree’s test-and-learn strategy is a photo-sharing feature on the site. Though photo-sharing and -uploading is a nearly ubiquitous feature on most social-networking sites, Wang’s team went a step further and discovered that the optimum number of photos a user should be allowed to upload is 50 at a time. The staff observed fairly quickly that users became bored and frustrated when they were only able to upload one photo at a time. However, by continuing to closely observe their users after allowing more than 200 photos to be uploaded at once, Wang and his team discovered that “if you ‘turn up the volume too much’ and enable parents to upload photos by the hundreds, then the idea becomes in their mind unmanageable.”

By optimizing a small detail like the number of photos a user is allowed to upload at once, the site has created such a useful and enjoyable service that it now holds more than 10 million pictures and has become the largest photo depository for young parents in China. This is one of the many examples of how an emergent strategy has led to products and features that have helped Babytree become an incredibly “sticky” site, with mothers spending on average more than 45 minutes a day browsing.

As Allen Wang’s application of this “launch many, launch often” approach creates more and more home-run features like this photo-sharing function, Babytree is reaping the rewards of envious growth in one of the world’s most elusive markets. Multinational companies like Kimberly-Clark (Huggies), Walt Disney, and P&G (Pampers), have poured more than $3 million into advertisements on the site in just nine months.

"We're sorry, but last night's weather meant the crew got in late. Your 8:20 a.m. flight from Martha's Vineyard to LaGuardia is now leaving at 11 a.m.," the representative said. "We've checked, and that still should give you enough time to get to Newark for your 3:15 p.m. flight to Hong Kong."

Through the early morning haze, I asked, "Do I have any other options?"

"Not that we can see," the agent said.

I tried to go back to sleep, but it was impossible. I had been in the States for four days — the primary purpose of the trip was celebrating Innosight's 10 year anniversary — and was pretty desperate to get back home to Singapore. My planned route was to fly from Newark to Hong Kong, layover for an hour, fly to Singapore, and make it home before midnight Sunday.

The US Airways flight ended up taking off right before noon. As it touched down at 1 p.m., I figured I had about a 60 percent chance to make it through the traffic between LaGuardia and Newark.

In the taxi ride, I noticed I had a voicemail. It was an automatic message from Continental, my carrier from Newark to Singapore. It reported a travel disruption, but my "new flights" were the same time as my old flights, so I figured it had just caught my US Airways blip.

My taxi pulled into Newark at 2:05 p.m., safely in time for my flight.

When I got my boarding pass the agent looked at his computer quizzickly. It too showed a flight disruption but he said I was still on the same flights. Off to security and a triumphant return to Singapore.

I got through security and looked at the monitor to find my gate. I saw the words all travelers dread: "HONG KONG - DELAYED - 9 PM DEPARTURE."

It was nearly a six-hour delay. That delay meant that my one hour layover in Hong Kong would now be seven hours, minimum.

To its credit, Continental handled the situation well. I received $50 in meal vouchers to use at Newark airport (which has a surprisingly high number of food choices), a 10% off coupon for any Continental flight, and a complimentary room in the airport hotel in Hong Kong. Staff were uniformly apologetic and incredibly helpful to me and the dozen or so other travelers in similar situations.

So, approximately 44 hours after that early wakeup call in Martha's Vineyard, I finally touched down in Singapore's Changi Airport.

If you've never been to the Changi airport, it's a frequent traveler's dream. Instead of having centralized security, it has security screening at each gate. That means that arriving passengers can go wander around the peaceful airport, shop duty free, and so on.

When I arrive in America, I mentally prepare for 20 to 30 minutes to wait in the line for immigration. Not in Changi. I swipe my passport in the machine, have my fingerprint scanned, and am through in seconds. I didn't check bags this trip, but even when I do they somehow seem to arrive within minutes. I blasted through customs, and hopped into a taxi.

The total time from leaving the plane to getting in a taxi: 11 minutes.

I'm not an expert in airport design, but Changi's approach seems to have several advantages to me:

• You never have to obsess about whether a busy airport will impact your ability to make it through security to catch your flight. The airport's overall traffic level has little impact on the time it takes to get from the front entrance to your gate.
• You have ample opportunities to shop when you land, which can be helpful for those of us who sometimes forget to get presents for the family when traveling.
• The airport's interior is designed like an oasis, with calming music, carpet, gardens, free wireless, and ample seating. I strangely enough look forward to spending time in it.

So, what does this all have to do with innovation?

Read the rest at Scott's Havard Business Review blog.

Sometimes, you find out -- as Coca-Cola did with New Coke -- right away.

But far more often, companies overshooting their customers’ needs and desires never know, I think. As they move on to their new and improved futures, these innovators don’t hear the resigned sighs of customers quietly grieving their abandoned products and services.

After all, what business ever asks its customers, “What did I used to make that you wish you still had?”

But a quick, if unscientific, poll around the office (hardly a random sample but one whose respondents ranged over three decades in age) turned up not only a surprising number of grieved products but an even more surprising amount of shared passion. Cries of shared exasperation went up from the rest of us as people recalled products they had loved and lost, all of which had been “improved” upon or diversified in some way that made them undesirable, driving us to their competitors.

To give you just a taste:
1. The standard Pantene shampoo that has been my coiffuring staple for years was recently divided into a matrix of 21 different shampoos, providing P&G with much more shelf-space coverage at CVS but leading me to select a competing brand after being overwhelmed by the new selection -- and underwhelmed by the new performance.
2. And that six-dollar, plain moisturizer I bought for years? Gone! Replaced by a slew of $50 moisturizers that tout facelift-like properties that I’m not about to pay for.
3. What about those Gap jeans that used to be 100% reliable but have been diversified into a myriad of fit options when we just want the classic look that we used to enjoy? “So sad,” says one Innosighter, speaking for many more.
4. We miss that Nike running shoe that now has too many features to feel natural or affordable,
5. the Wilson NPro nSurge tennis racquet, which lost us as customers when it added “[K] factor” technology,
6. and the original Jeep Cherokee, which cannot be replaced by the smaller Liberty or the crossover Subaru Outback.
7. We hoard the last remaining tidbits of Aveda’s Rosemary Mint shaving lotion, Earth perfume, and Estee Lauder concealer -- saving them for weddings and other special occasions.

Collectively, we mourn.

So, are we just anomalies? Do we each represent an unsustainably small market in our preferences? Perhaps. Though we were all surprised at how many of us were pining after the same lost products. As our colleague Allen put it, “Their small product innovations have innovated the classic [product] out of my life. Why did they have to ruin a good thing?”

Let me be clear here. I’m not suggesting that companies stop improving core offerings. We advise our clients that product improvement (that is, incremental, sustaining development) should comprise a critical, dominant part of any company’s innovation portfolio – complemented by disruptive efforts, focused on planting the seeds for long-term growth. Keeping those two separate is the trick, and sometimes for reasons that are not at all obvious.

For instance, Innosight Venture’s Managing Director Scott Anthony often tells clients to be wary of something he calls “Penrosian Slack,” – that is, slack capacity on innovation teams. In her (very dense) book The Theory of the Growth of the Firm, Edith Penrose argued that you could tell a company’s future strategy by looking at its slack capacity, because the slack capacity always gets filled. So an idle manufacturing line starts running, a salesperson with time on her hand starts making sales calls, and so on. The company’s strategy gets pulled off track by the activities that fill the slack capacity. Perhaps we sometimes further develop products that already optimally meet consumer needs simply because we have product development teams that need to be productive.

Customers are often happier with the simpler, cheaper version and won’t pay more for a more sophisticated, heavily featured offering. Jobs-based customer research can reveal what your customers are and are not willing to trade off; sometimes, the best move is none at all.

Our poll suggests that recognizing a good thing when you’ve got it is devilishly hard. What successful products have been innovated out of your life?

Last week, a company called QlikTech issued stock to the public. The company is more than a decade old. Most people wouldn't recognize CEO Lars Bjork if they ran into him on the street. A Google News search found 2,180 articles about Tesla, and 68 about QlikTech.

Tesla's the sexier company, but is it better positioned for success?

I flagged QlikTech last year in The Silver Lining as one to watch during today's tough economic climate, noting that "Companies seeking to find prudent ways to manage in tough economic times are going to be hungry for easy, affordable ways to analyze data. QlikTech is in a great position to be the software vendor of choice to these companies." QlikTech is following a textbook disruptive approach. The company's solutions make it simple and easy for companies to run analyses to better understand their business. It has a solid business model. The company's revenues have grown from $24 million in 2005 to $157 million in 2009. It has been profitable since 2008.

Meanwhile, Tesla is undoubtedly following a novel approach, but it isn't adhering to the disruptive pattern. Rather, it's attempting to be performance competitive with existing solutions. Its first car — the Tesla Roadster — is sexy, and a powerful showcase of the potential of Tesla's technology. But its $100,000-plus selling price has relegated it to a niche product. The company did rack up more than $100 million in sales in 2009, but losses for the year exceeded $50 million.

Analysts generally expect Tesla's fortunes to come down to a car it hopes to introduce in 2012 — the "Model S" sedan targeting the mass market. That puts it in direct competition with traditional manufactures such as General Motors, whose all-electric Volt product is due to arrive later this year, and emerging players such as BYD, a Chinese company that already has an electric vehicle on the market and recently announced a joint venture with German giant Daimler.

Tesla believes it has several sources of competitive differentiation. It hopes to revolutionize the car buying experience by bringing in outside talent with experience working with The Gap and Apple. The company claims that its Silicon Valley roots provide a different perspective from traditional car companies. One example?

Read the rest at Scott's Havard Business Review blog.

Two main business models seem to exist for kitchen operations in mid- to high-end dinner restaurants. The first applies mainly to one-off, small restaurants, which run low-volume, high-margin operations, where kitchen workers work very long hours on low salaries for the opportunity to learn the art from a masterful chef. The second model is typical of upscale chains or hotel restaurants (“corporate kitchens”), which run more efficiently at lower margins and greater scale.

Both models have their drawbacks, particularly where the cooks are concerned. Significant flaws in the first model include high potential for burnout and turnover. The budget and quality of food may suffer from time to time when cooks quit without notice. To cover the shortage, remaining cooks then have to work even more hours while the restaurant has to spend money on costly recruiting efforts aimed at a relatively small pool of talent. Then, once hired, new cooks have to get up to speed, during which time the restaurant may have to limit seating to account for slower work in the kitchen.

But cooks who go the corporate-kitchen route have dissatisfactions of their own. They may be seen as selling out, sacrificing the “art” for better pay, sustainable hours, and benefits. What’s more, for those who seek to open their own restaurants in the future or otherwise compete in the chef spotlight, the corporate kitchen is something of a dead end, and these kitchens lose out on much of the top talent as a result.

I think these drawbacks could be addressed creatively and profitably if restaurants thought more expansively about business models—if they thought of cooks not as costs but as key resources in an integrated business model. Using that frame, a small restaurant might see how it could actually increase profitability if it hired more staff and built in some slack time rather than making a smaller staff work harder. Adopting a hybrid model where small, non-corporate kitchens hire a few more cooks who all work somewhat more reasonable hours at somewhat higher pay, an enterprising high-end restaurant could offset the higher costs through lower turnover, leading to less waste of time and resources, to say nothing of the potential for greater customer loyalty that the more reliable operation might engender and the possibility of poaching talent from competitors with less-attractive working conditions. Money spent on cooks, in the business model context, becomes an investment in a potentially virtuous cycle and a competitive advantage.

What do you think? Where do you see room for innovation in the restaurant industry?

For the past month, soccer fans from around the world were glued to their television sets feasting on the global showcase that is the FIFA World Cup, which just concluded in South Africa. Vuvuzelas buzzed, incredible goals were scored, yet the global event also reactivated a vigorous debate on the introduction of a goal-line technology in soccer. Before he made a dramatic U-turn, Sepp Blatter, the FIFA president, posited that any technology would disrupt the world's most popular sport. Was he right?

He was, of course, talking of disruption in the literal sense. Without a doubt, the introduction of goal line technology will halt the natural rhythm of the game as referees pause to consult with one another and await that confirmatory text message. For Blatter and the soccer romantics, the introduction of technology would forever alter the face of the game.

But the more interesting question is whether this technology will disrupt the game in the business sense. Here a definition is in order. A business disruption, at its most basic, is a trade-off: it occurs in an existing market when an offering is introduced that performs better in some important way for stakeholders than current alternatives do but doesn’t perform as well in some other ways they don’t value as much.

For many technology opponents, the negative side of the trade-off is all too obvious: They argue that adoption will damage a critical aspect of soccer’s value proposition – the universality of the game. According to this line of thinking, a fundamental strength of the game is that it is played according to the same rules and methods of refereeing everywhere at every level, whether in a social game in the dusty streets of Ouagadougou, a pub game in England, or a World Cup game in South Africa. Uniformly applying goal-line technology would surely raise the cost of the game for too many a player or, if applied only in certain circumstances, undermine its global cohesiveness.

For technology supporters, though, the positive side of the trade-off is for all to see. Indeed, goal-line technology would satisfy the referee’s functional job of making sure the correct decisions are made, the emotional job of feeling in control of the game, and the social job of being perceived by both players and fans as a capable and dependable decision-maker. So the value proposition it represents would be compelling to the Jorge Larriondas of this world.

More subtle emotional benefits may be at play here as well: In my many attempts to woo my American friends to what I consider to be the world’s most beautiful game, for instance, they almost consistently site how outdated the sport is, pointing as evidence to such glaring errors as when referee Larrionda failed to award Frank Lampard's superb lofted strike that landed feet over the line behind the keeper during the England-Germany match. This was, without a doubt, an error that would be quickly remedied by consulting the instant-replay technology already the norm in any more technologically modern sport, like, say American football.

Which, then, is more valuable? The flow and the universality of the game or the accuracy of its result? There’s no easy answer here. And neither is there a single, non-contentious answer for all the stakeholders—the fans, the players, the owners, the referees. But as FIFA continues to ponder the adoption of goal-line technology, it will get a more complete picture of all the trade-offs involved by answering the following questions:

• Jobs: What spectator jobs will the goal-line technology satisfy? What about the players’ jobs? The owners’? And the referees’?
• Value proposition: How will technology change the value proposition for the soccer-loving fan? Will the experience for fans, players, and referees in both the amateur and professional soccer leagues be drastically different?
• Trade-offs: What will fans, players, and referees gain or lose from the adoption of this technology? What can be learned from cricket, tennis, rugby, and many other sports that have successfully embraced the use of such technologies?

If goal-line technology fully satisfies the jobs of all key stakeholders in the game, offers the right trade-offs for a compelling value proposition, then, some disruption may be a necessary evil.

Reading through some of the ongoing dialogues around strategy and innovation makes me appreciate these tendencies. So many arguments are framed as either do this or do that. One example is an emerging "battle" between "East Coast" strategic thinkers and "West Coast" design thinkers. Another "either/or" is well summed up by this great blog post by Eric Paley (a Dartmouth classmate of mine who has had entrepreneurial success and writes a great blog).

Paley's post discussed a debate he had with the co-founder of his successful startup Brontes Technologies about the best way to approach innovation. Paley favored a more analytical approach, which he dubbed "Moneyball" after the Michael Lewis book describing the statistical approach favored by Oakland A's general manager Billy Beane. His co-founder was more of a believer in "Blink," after the Malcolm Gladwell book describing the merits of instinctive judgment.

The middle child in me responds to these kinds of discussions with, "Why can't we be both?"

I generally think the best entrepreneurs blend these two characteristics. Their instincts might point them to an opportunity, or tell them it is time to focus resources on developing a particular feature or serving a particular customer segment. But analysis helps them determine which opportunity to pursue, or how they will actually go about the important task of, you know, actually making money.

A well known example is Jeff Bezos.

Read the rest at Scott's Havard Business Review blog.

I recently listened to an HBR interview with Tony Schwartz (CEO of The Energy Project) in which he argues for a conscious approach to aligning work patterns with our “ultradian rhythms” (basically, the 90-minute energy cycles that comprise the 24-hour circadian rhythm). The idea is to work for intense 90-minute intervals, followed by a brief period of renewal and recovery, followed by work, and so on. This approach should maximize our productivity, Schwartz says, because it’s in line with our bodies’ natural rhythm of energy expenditure and renewal.

For me his findings raise the question of how else we might apply the power of rhythm, and they lead to what at first glance might be a surprising analogy from a much older body of research: Herman Melville’s Moby Dick. Most people remember this (if they remember it at all) as the story of Captain Ahab and his unnatural obsession with the great sperm whale, but it’s also a trove of information about the natural behavior of whales themselves. Sperm whales, too, follow an ultradian rhythm, as Melville describes in careful detail:

[The whale] systematically lives, by intervals, his full hour and more (when at the bottom) without drawing a single breath . . . Upon rising to the surface, the Sperm Whale will continue there for a period of time exactly uniform with all his other unmolested risings. Say he stays eleven minutes, and jets seventy times, that is, respires seventy breaths; then whenever he rises again, he will be sure to have his seventy breaths over again, to a minute.

I find this imagery of depth useful in thinking about ultradian rhythms as they relate not just to productivity but to learning, and specifically how they apply to jobs-to-be-done research. To be effective, the process of gathering, understanding, retaining, and applying the new information that leads to actionable customer insights needs to follow a similar pattern: First the “deep dive” into the complexity of people’s behavior, their circumstances, and their motivations, but then a rising at regular intervals to step back, synthesize, and simplify our new-found knowledge from the deep. If we spend too long in the deep we risk drowning in the chaos, without establishing context or relevance, in great stress and confusion. But if we spend too long at the surface we risk becoming simplistic and, again, irrelevant. Out of that carefully balanced process come effective formulations of discreet stakeholder jobs that are simple without being simplistic.

You are working off a simple hypothesis that's right in almost every company — that size matters. Power flows from financial contributions and legions of employees. You groom leaders by giving them progressively larger, more challenging opportunities.

This approach seems logical. The bigger the business, the more it matters to a company's near-term performance. And certainly, larger businesses tend to be more complex. Tomorrow's leaders surely need to be able to deal with complexity!

But I wonder if companies might be approaching leadership development the wrong way. It's pretty clear that tomorrow's leaders are going to face the "new normal" of constant change. It is no longer enough to be an operator that can master today's complexity. You have to be prepared to deal with tomorrow's complexity, "black swan" events, sudden shifts in the basis of competition in your industry, competitors springing up around the globe, and more.

I've never run a multi-billion dollar company, but I'm willing to bet the difference in complexity between managing $1 billion and $10 billion in revenues, or 1,000 versus 10,000 employees isn't that great. In other words, giving up-and-comers more responsibility helps them to refine skills they already have, when what they need to do is to develop the capability to flexibly respond to unanticipated challenges.

A related challenge is that size-matters-grooming companies can find it hard to convince talented managers to work on new growth initiatives. After all, those initiatives typically start small, both in terms of headcount and revenue. Managers with their eye on their next assignment naturally want to work on projects that will "look good" on their internal resume.

Perhaps it is time to rethink this approach.

Read the rest at Scott's Havard Business Review blog.

That's a pretty good title if you (like Henry Blodget from Silicon Alley Insider, the writer of the article) are trying to grab eyeballs. It also provides a useful introduction to what I call the "Innovator's Paradox."

Blodget's article was provocative. He argued that Microsoft is in a no-win situation. It isn't sitting on any idea that is on the cusp of turning into a multi-billion dollar business. The personal computer is losing its dominance to mobile devices and tablets. The company's core profit drivers (Windows and Office) are under disruptive assault from Google's freely available applications and operating system. At best, Microsoft will respond with its own free products and erode its profit margin.

The most telling thing in Blodget's post was a chart that showed the sources of Microsoft's profits over the past few years. Microsoft's core business has continued — despite continued proclamations of the company's coming demise — to throw off cash and to grow. But new growth businesses that were specks in 2006 (entertainment and devices and online services) remain tiny, and Microsoft hasn't created any material new businesses over the past few years.

So the real problem isn't what Microsoft is doing today. It's what Microsoft did, or didn't do, five, or even 10 years ago. At the time, its base business was a bastion of strength. Today's threats were in their infancies. It would have been the perfect time to plant seeds that today would be blooming profit generators.

Why didn't it? It's The Innovator's Paradox: When you don't need the growth, you act in ways that lead to you not getting the growth you will need. And when you do need the growth, you can't act in ways that deliver it.

Read the rest at Scott's Havard Business Review blog.

Doesn't seem so fascinating, does it? After all, any member of a "tribe" has markers to demonstrate their allegiance to the tribe. But Alex continued. "Don't you think instead this room should be bursting with products made by competitors? Or other solutions consumers turn to instead of the company's products?"

It was a thought provoking point. At most companies, it is a mark of shame to use anything other than the company's product. I doubt that you would see many tubes of Crest at Colgate-Palmolive. Try bringing a Coke product into Pepsi. Steve Ballmer from Microsoft famously berated an employee last year for using an iPhone at a company event. I remember a few years ago when we were working for DHL and we committed a cardinal sin. Not only did we send the company something via FedEx. It was an invoice. (Fortunately a friendly client interceded and saved us from trouble).

It's kind of silly, isn't it? An innovation-focused company shouldn't have an avoid-the-competition-at-all-costs mindset. Instead, the company should always be wondering:

•What is the competition up to?
•Why might people prefer their products to ours?
•How does the customer think through purchase-and-use decisions?

Some companies have people who focus solely on competitive intelligence, but the simplest form of competitive intelligence is to encourage employees to act like "regular" customers. Pick whatever solution gets the job done better than anyone else.

Read the rest at Scott's Havard Business Review blog.

In this issue we feature a new interview with Innosight Chairman Mark W. Johnson in which he discusses the challenges faced by leaders of organizations focused on innovation, including barriers to innovation, managing failures, and how to educate tomorrow’s innovators.

Also, in an article from our archives, Renee Hopkins and Gwen Ishmael discuss how to take a heuristic approach in the initial stages of an innovation venture. Here is an excerpt:

We often make innovation more complicated than it needs to be, analyzing everything only to miss the critical factor that would lead to success. Companies invest tens of millions of dollars and countless hours of time only to find they have missed the mark...Innovation is legitimately hard to predict. But there must be a way to gain a clearer picture of an unknown future. Based on in-depth studies of 20 innovation stories — including both successes and failures — this article proposes a six-question heuristic framework that helps companies gain a clearer picture upfront of what factors they must consider to make their innovation efforts successful.

Finally, a couple of posts from the InnoBlog including Renee Hopkin's report on last week’s World Innovation Forum and Robyn Bolton's I Heart Design. Here is an excerpt:

Like many of my friends, I fancy myself an amateur interior designer. But, aside from spontaneously rearranging the furniture and accessories in my home and decorating my sister’s first apartment (including pulling together design boards for our “design consultation”), nothing formal has come of our efforts. Not so for friends Andrea, Casey, and Ashley who, in 2009, pooled their collective design experiences and opened luxury interior design firm Avenue Interior Design.

Read Strategy & Innovation articles here.

Starting with the first speaker, Michael Porter (pictured here), conference presenters — including Michael Howe, the creator of MinuteClinic, Jeff Kindler of Pfizer, and Joel Makower of GreenBiz.com — particularly spoke of business model innovation. Porter's recommendations on how we can fix healthcare in this country focused on the need to identify value for patients and innovate outmoded delivery systems and profit models — both critical parts of the four-box model for business model innovation. Howe spoke of the ways in which MinuteClinic actually did those things and the ways in which the value proposition around healthcare has changed for consumers, who now expect to be participants in their healthcare rather than receivers of healthcare.

Jeff Kindler of Pfizer spoke of how Pfizer is organized around small teams each with its own innovation "officer," and of the need for pharmaceutical companies to innovate new models for care, including personalized medicine and even counseling, an area in which you wouldn't imagine a pharmaceutical company could innovate. More importantly, Kindler spoke of the need for agility and the need for open innovation due to the increased velocity of change. "You need to move faster than the competitors you don't know about," he said. "You need to think this way every single day."

Joel Makower of GreenBiz.com talked of the ways in which a company has to integrate "going green" with its business model: "The question is now how does going green create value for a company?" He also talked of ways in which a company can innovate its business model to become more green: rethink management of materials, logistics, and chemicals. And, we would say at Innosight, above all you must reimagine the customer value proposition.

As if to wrap up the business model innovation message, consulting firm Capgemini presented the results of a CEO survey whose main finding was that since the previous year's survey, business model innovation as a priority has leapt ahead of all others, including operational innovation and cost reduction. That dovetailed nicely also with a point that Michael Porter made earlier the same day: "Every company should now ask itself, 'What is my fundamental purpose?' After two years of cost-cutting, you'd better sit down with your team and make sure you HAVE a strategy that's not just cost-cutting!"

If you're interested in knowing more about what went on at the World Innovation Forum, blog posts by all the Bloggers' Hub writers are here. A transcript of all of the tweets that were posted at the #wif10 hashtag during the conference is here. Searching the #wif10 hashtag on twitter.com will get you the most-up-to-date wrap-up blog posts and tweets.

In this article posted today at Forbes.com we see how apparel retailers are no longer fighting each other for the shrinking back-to-school budget, but find themselves competing on a much broader front against big box electronics stores and specialty producers like Apple. Traditionally, research methods in the fashion industry have consisted of trend analysis, looking at the leading edge epicenters of trend makers and fashionistas in Paris, NYC, and Los Angeles, and trying to predict which of these avant garde styles would catch on with the mainstream consumers. This works if you are focused on solving the job of “have a relevant wardrobe” but in the schema of a teen's life, wardrobe is but one dimension of projecting who they are. A higher-order job for them might be “be seen as current,” with sub-jobs under that of “know current events/movies/bands/catchphrases” and “use latest technology” and “have a relevant wardrobe”.

Over time, the importance of each of these sub-jobs has shifted. Peer pressure determines which will spike most for a teen in terms of contribution to the higher-order job and thereby claim the lion’s share of the back-to- school budget. In the hyper-consumptive 80s, fashion was seen as the way to project currency, with Madonna and Don Johnson-like celebrities leading multiple fashion movements through the decade (neon leg warmers anyone?), while those sporting an Apple IIe in their living room were seen as odd at best. In the 90s, with the explosion of the neo-punk/grunge scene and new online tools enabling global awareness of diverse forms of music and entertainment, fashion took a turn towards flannel and in terms of making a statement, took a back seat to Nirvana, anime, and grassroots music festivals. This past decade has finally seen the rise of machines, where the belt wasn’t nearly as important as what was clipped to it. Smartphones, MP3/media players and handheld video game consoles have become the symbols of “connectedness” and with them, the means to project how current you are, with the Motorola RAZR and the iPhone being icons.

As technology performance becomes more homogenous (who doesn’t have a 3G/4G web-browsing, texting, 5mp video camera-enabled phone that works globally?) and every possible taste in entertainment becomes available on demand, are we once again poised for a resurgence of fashion as the means to project currency? Designers and retailers who recognize this potential will put their marketing dollars into promoting the wardrobe and their brand in particular as the only true way to be current. Without this shift in job importance among teens, an updated line of brighter colors and patterns simply can’t compete with today’s rechargeable bling.

Naked Apartments was founded last September as a New York-only tool designed to make finding an apartment a little easier, and as you might suspect it’s very similar in many ways to its competitors. There’s the search function with editable parameters, the map with a little icon for each available apartment, the photos of living rooms that may or may not be using some perspective trickery… but there are also some unique, differentiating features that set Naked Apartments apart.

Unlike most other apartment rental sites, Naked Apartments makes brokers’ lives easier, too, by targeting some of their most important jobs-to-be-done. Brokers don’t want to waste their time with non-serious prospective renters, so Naked Apartments requires renters to complete detailed profiles before they can see any brokers’ contact information. This system pays off for renters, too: based on the needs they outline in their profiles, brokers can search for renters and reach out to them proactively, paying a small fee each time to dissuade spam and pay the ad-free site’s bills. Renters can rate brokers, of course, but the site goes a step further and rates renters based on how actively they use the site, so brokers can get a sense of which renters are most likely to respond seriously to outreach.

The site is certainly helping me get my jobs done so far. Its nifty, easy-to-use features combine to create what a Mashable review characterizes as “Match.com for NYC real estate”: a service that connects people who need each other. Now if I could just get a better deal on rent…

I was an observer in this meeting. I sat quietly and took some notes. After the meeting the team leader said, "That was a really good review. The executives were really involved and we have deeper buy-in to our plan."

I had a different perspective.

"I don't think a single executive could tell you the essence of the idea, or what makes it compelling," I said. "You survived the meeting, but I don't think you are any closer to convincing executives that they should invest in this idea."

I explained how, based on the pioneering thinking from Rita McGrath and Ian MacMillian, I like to focus these discussions on three simple questions:

1."What size matters?" In other words, how big does an opportunity have to be to matter inside a company?
2."What is a simple calculation that crosses that bar?"
3."What leads you to believe that calculation is plausible?"

Any marketer can quickly rattle off the so-called "4 Ps" of marketing (product, price, place, and promotion). Innovators should also be able to quickly recite the 4 Ps that capture their idea's potential: population, penetration, price, and purchase frequency.

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

• Magazine companies hoping that the iPad will "save" the industry could be disappointed. I downloaded the Wired magazine app, but have largely found the experience to be disappointing. Sure, there are a couple bells and whistles, but for the most part I find it to be a worse experience then reading a magazine. You never want to give consumers something they consider worse than existing solutions. What job do people "hire" a magazine to get done? I use magazines to browse, discover, relax, and unwind. A hard copy magazine gets these jobs done very well. Of course, magazine companies find it more economical to distribute content digitally, but they have to make sure that the experience doesn't disappoint readers.

• The tablet format will transform education. It is utterly amazing to watch my kids use the simple, intuitive device. They have been reading books, playing number games, learning the alphabet, and so on. It's pretty easy to envision next-generation interactive textbooks with ties to customized tutoring solutions (conflict alert — we are an investor in such a solution, called Guaranteach). And Apple does have a strong historical connection to education. I can also see the tablet format becoming a big deal in healthcare and for salespeople.

• The iPad is rugged. The device survived a tantrum from my two-year-old daughter Holly and an effort by my four year-old-son Charlie to use it as a surfboard!

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

Before the conference starts, I want to link to a great resource posted by my fellow blogger Stu Miniman: a spreadsheet with background information on all the speakers, including their most recent books summary, blog posts, and/or tweets (yes, Stu is a proud geek!). The official line-up of World Innovation Forum speakers, which also includes links to bios, is here.

Disclosure: Like last year, I've been given a free blogger pass to the conference, but am under no obligation to write anything.

Indeed, top-level headlines describing how change is accelerating, how leaders need to become better at reinventing their businesses, and the critical importance of customer focus, echo critical themes explored by me and my colleagues in recent years.

It's good to see growing alignment about the need to confront the "new normal" of constant change. Yet, while I agree with many of the report's broad findings, something nagged me as I thought about it over the weekend. I finally put my finger on it as I touched down in Manila on Monday night: I worry that leaders seeking to meet the challenges spelled out in IBM's report will completely miss the mark.

That concern is most acute when it comes to the report's first section, which described how CEOs were looking for more creative leaders. As IBM Chairman and CEO Sam Palmisano noted in the report's introduction, respondents viewed creativity as the "single most important leadership competency for enterprises seeking a path through this complexity."

The report suggests that creative leaders should "embrace ambiguity," "take risks that disrupt legacy business models," and "leapfrog beyond tried-and-true management styles."

Executives certainly feel the need for this kind of creativity. IBM's survey provides one clear example. My own experience suggests that executives often lament how their organization "isn't good at developing good ideas" or "isn't as creative as it should be." One leader put it bluntly: "Can't you just get my people to be more innovative? If not, can you help me find some new people?"

What's behind questions like this is an implicit assumption that creativity is a human capital problem. If this assumption is right, the answer is coaching, cajoling, or — in an extreme case — replacement.

But having spent a lot of time inside a lot of companies, I believe that human capital isn't the problem.

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

• James Todhunter, Innovating to Win
• Andrea Meyer, Working Knowledge
• Jeffrey Phillips, Innovate on Purpose
• Jim McGee, FastForward and McGee's Musings (same review at both)
• Braden Kelley, Blogging Innovation

Q: In your article you talk about the concept of removing risk vs managing risk, and the sense that not all risk is created equally. Can you say more about this? Is the entrepreneur removing risk or managing risk?

Gilbert: They’re doing both, because you can’t remove all risk. We’re not saying “remove all risk and then move forward,” we’re saying, “remove some of the key risks, reduce others, and learn. This sequence of key risk reduction will cause your value to go up disproportionately.”

In this issue is an excerpt from Mark W. Johnson’s Seizing the White Space that delves into a very specific type of innovation -- how companies can innovate at the business model level by merger and acquisition.

Also, Scott Anthony discusses how P&G quietly launched a disruptive innovation in "Yes, Big Corporations Can Disrupt." Here is an excerpt:

The Edison Best New Products Awards recently bestowed a Gold medal in the Consumer Packaged Goods, Consumer Drug Segment to "Align Probiotic Food Supplement" from Procter & Gamble. This gives me the opportunity repeat a story that has important lessons for innovators everywhere. I first met the Align team in 2004.

Read Strategy & Innovation articles here.

A couple of days later, I was talking to my colleague Matt Eyring. He said, "So Scott, you've been a big supporter of Apple over the past few years. What do you think about buying some stock?"

"Trees don't grow to the sky forever," I told Matt.

Whoops.

Since late 2005, Apple's stock has quintupled. With a market capitalization of close to $250 billion, Apple is (at least today) the third most valuable company in the world, behind ExxonMobil and Microsoft.

It's a stunning story that's been dissected to death, but still remarkable enough to warrant reflection. Ten years ago — three years after Chairman and CEO Steve Jobs had returned to "rescue" Apple — the company was still largely treading water, with a relatively meager $3 billion market capitalization. Its personal computer products had a loyal following in niche markets, but that was about it.

Over the past decade, Apple has launched five legitimately game-changing innovations...

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

Not so for friends Andrea, Casey, and Ashley who, in 2009, pooled their collective design experiences and opened luxury interior design firm Avenue Interior Design. I’ll be honest, I don’t know much about Avenue but I’m willing to bet that, like most companies that operate at the premium price tier of their industries, their business was a bit slow due to the Great Recession. But, unlike most premium companies, these intrepid designers did something different. They did something disruptive. They created I Heart Design.

I Heart Design is an online interior design website that offers consumers the expertise of trained designers and the benefit of custom designs for a fraction of the cost and time. Here’s how it works:

1. Pick your design style from nine options (everything from Wall Street to Rue Claudel to Surfside Ave)
2. Answer questions about the room you want to make over and upload its measurements and some photos along with any specific instructions (for example, “My husband loves this photo of the soaring eagle. I hate it but it needs to be in the room. Can we hide it somehow?”)
3. (NOTE: this is the disruptive genius part) Review your estimate which is based on the square footage of the room
4. Relax
5. In three weeks, you receive a box with two floor plans, recommended paint colors and window treatments, decorating tools (tape measure, tape, etc), and the password to your private interior design store
6. Visit your design store to buy as much or as little of the furniture and accessories from your design

That’s it! No time-consuming appointments. No wasted effort trying to tell the difference (let alone choose) between eggshell white and cumulus cloud white. No judgmental stares when you flip out about the price tag on the purple shag sofa that the designer insists you simply must have. No paying the equivalent of a month’s rent to decorate a room the size of a closet. Just a few minutes answering an online questionnaire and taking some photos and measurements gets you two personalized designs and your own virtual store, all for a price that is (literally) proportionate to your room size.

I Heart Design is a perfect example of how “good enough” can be great and how an existing company can use their understanding of consumers’ jobs-to-be-done and a new business model to attract nonconsumers and build an entirely new revenue stream.

I heart disruptive innovation and that’s one of the reasons I heart I Heart Design.

I first met the Align team in 2004. The team was developing a probiotic pill whose daily use could alleviate the symptoms of irritable bowel syndrome. More than 30 million people in the United States alone are reported to have this condition. The best that most can do is to modify their lives to account for the condition.

The idea was brimming with disruptive potential. A pressing problem with no adequate solutions. A potentially category-creating way to get the job done. The product had unique intellectual property, and consumers who tried it reported that their lives were changed.

And, of course, it was about to get shut down.

Why the disconnect? The original market forecast said that the opportunity would be relatively small. Launching a new brand is expensive, and the team hadn't yet worked out all the technological kinks. Big investment, high risk, small return is not a recipe for corporate approval.

Yet, the team, under the guidance of Nancy McCarthy, persevered. We helped the team conduct scenario analysis to identify the assumptions that would have to prove true to justify a full-scale launch. Management agreed to provide a small amount of money to learn more about these assumptions. The team quietly launched the product over the Internet. It didn't spend tens of millions in advertising; rather it used its existing pharmaceutical sales force to push the product in a few cities.

P&G then moved to sell the product online through websites like Walgreens.com. Finally, the product launched nationally early last year.

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

Thanks to all the bloggers for their time and attention!

Here are links to this week's previous reviews:

• Andrea Meyer, Working Knowledge
• Jeffrey Phillips, Innovate on Purpose
• Jim McGee, FastForward and McGee's Musings (same review at both)
• Braden Kelley, Blogging Innovation

Also up today is Braden Kelley's review on Blogging Innovation

Tomorrow, James Todhunter from Innovating To Win will post a review, and on May 14, Dan Keldsen from Information Architected will officially wrap up the tour with an interview with author Mark Johnson.

Previous blog stops on the tour were:

• Monday, May 3: Andrea Meyer, Working Knowledge
• Wednesday, May 4: Jeffrey Phillips, Innovate on Purpose

Here's the rest of the schedule:

• Thursday, May 6: Jim McGee, FastForward Blog and Braden Kelley, Blogging Innovation
• Friday, May 7: James Todhunter, Innovating to Win
• Friday, May 14: Dan Keldsen, Information Architected

The chart displayed the number of pieces of mail sent by year over the last decade. When you look at the chart, the first thing you probably noticed was the precipitous decline in mail volume over the past few years. Indeed, mail volume has sagged 17 percent since 2006. Even though the postal service has furiously cut staff over that time period, it's still pleading with regulators to allow it to consider additional strategic responses to address the disruption clearly affecting its business.

That's not what scared me though. I found the years from 2000 to 2006 to be particularly frightening, when nothing much was happening in mail volume.

How could a relatively flat line be scary?

It just looked so eerily familiar. Go back and look at what happened to CD sales from 1996 to 2001. Or check out newspaper company revenues from 1996 to 2005. Or Kodak's film sales during the 1990s. Or Blockbuster's revenues in the early part of the 2000s. Or Digital Equipment Corporation's revenues in the 1980s. And on and on and on.

In the early days of transformation, market leaders tend not to feel deep pain. The transformation takes root away from the mainstream, or in a seemingly non-connected market. It's not yet good enough for mainstream markets. Or, the overall increase in consumption acts as a "rising tide" that lifts the boats in the mainstream market. This makes it easy for executives to say, "I get what you are talking about. But my business is healthy! It's all overblown."It's only after the not-good-enough transformation gets better that a "Big Switch" begins. And when that magic tipping point hits, the switch accelerates rapidly.It's only after the not-good-enough transformation gets better that a "Big Switch" begins. And when that magic tipping point hits, the switch accelerates rapidly.

It's only after the not-good-enough transformation gets better that a "Big Switch" begins. And when that magic tipping point hits, the switch accelerates rapidly.

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

• Monday, May 3: Andrea Meyer, Working Knowledge
• Tuesday, May 4: Braden Kelley, Blogging Innovation
• Wednesday, May 5: Jeffrey Phillips, Innovate on Purpose
• Thursday, May 6: Jim McGee, FastForward Blog
• Friday, May 7: James Todhunter, Innovating to Win
• Friday, May 14: Dan Keldsen, Information Architected

Andrea Meyer of Working Knowledge has already posted her review here. We'll provide links to the rest of the reviews as they are posted this week.

Over the course of the afternoon, we heard from three speakers who stressed the importance of senior leaders role modeling behaviors that drive innovation: Alex Bogusky, Chief Creative Insurgent of MDC Partner; Matt Kistler, SVP of Sustainability for Walmart, and Mark Parker, President and CEO of Nike.

Bogusky kicked everything off when, with Susan Lyne, the CEO of Gilt Groupe, he spoke about courage and tenacity in innovation and, specifically, the need to focus more on our success than on our failures. Focusing on failures for the purposes of learning, he believes, does little more than create a culture of fear that eventually mutates into a culture in which everything starts to be seen as a failure. He explained that, when Crispin Porter + Bogusky loses a client, he runs around the office, tearing down and destroying all evidence that they ever existed. He does this not to be vindictive or diminish the quality of work done for the now former client, but to stop people from dwelling on the loss and instead focus them on the future, on all the new clients to be served, and the new work yet to be done.

As the face of Walmart’s sustainability efforts, Kistler finds himself in a much different position. Unlike Bogusky, who founded the firm that bears his name and established a culture and approach that encourages thinking and acting differently, Kistler needed to completely change the mindset and business practices of one of the world’s largest companies. Long maligned as a poster-child for unfair labor practices and destructive environmental activities, Walmart recognized the need to adopt more sustainable practices. As SVP of Sustainability, Kistler is key to transforming the way Walmart, its 100,000 suppliers, and its 2.1 mission associates operate as he must be the champion, role model, and enforcer of the company’s global sustainability strategy.

While Bogusky was creating a culture and Kistler was trying to change one, Parker was focusing on cultivating Nike’s culture and editing its product line. Nike has a long history and a well-deserved reputation for design, performance, and innovation, and those are all qualities that Parker wants to enhance and nurture. But he’s not willing to cultivate those qualities at any cost. Shortly after assuming the CEO position, a conversation with Steve Jobs highlighted the importance of editing Nike’s products to keep only the best stuff and “get rid of the crap.” “That became my mission as CEO,” he explained, “To edit.”

These are just three snippets of some of the fascinating discussions that happened during the event, but they underline a message we often stress to our clients – the importance of senior leadership in advocating for innovation and “leaning forward” as active problem solvers. To create, change, and cultivate cultures of success, sustainability, design, or innovation, all three of these executives need to be role models, help others to follow their example, and reward those who do so.

Of course, any new venture is fragile. While revenues are growing, the company hasn't yet hit breakeven. Its current projections suggest that point is still at least six months away. The company has some cash in the bank, but recently began looking for further external investment to help ensure it remains solvent.

Our discussion went something like this:

Me: "So, how important is it that you get external funding?"

Team: "It's important, but not critical because we have cash in the bank."

Scott: "How much?"

Team: "A few hundred thousand dollars"

Scott: "What are your current spending projections?"
(I hear a shuffling of paper...)

Team: "30 to 50 thousand a month."

Scott: "Well, that seems pretty urgent to me. You have about six months of life left."

One of the first lessons taught to me by my Harvard Business School finance professor sticks with me to this day: The only reason a business fails is that it runs out of cash. As such, the first question every entrepreneur should be able to answer in a second is, "How many days do I have to live?" That helps the entrepreneur think about how to manage their costs and their funding strategy.

The second question I look for an immediate response to is, "Why are you doing this?" Starting up new businesses is incredibly hard. Most fail. The ones that succeed require hard work and constant attention. An entrepreneur who doesn't have a good answer to this question is unlikely to succeed — and is certainly unlikely to raise external capital.

Fortunately, the team I was guiding could answer this question easily. They believed their approach could fundamentally change the category and dramatically improve the lives of their consumers. The early data supported their view.

Finally, I always want an entrepreneur to tell me the two critical things they are working on at any given time. Of course, any new venture will have dozens of areas that need attention on a daily basis. But a good entrepreneur can step back and highlight the two things they are really hoping to learn during a set time period. These aren't always the fires burning brightest. Ideally, they relate to the biggest unknowns in the hypothesized business model.

Time will tell if the team I was working with will succeed. But by focusing on how long they have to live, why the hard work is worth it, and what the most critical issues are, I know they will maximize their odds of success.

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

By Mark W. Johnson

When people want to transfer money safely and directly to one another in the Europe, they go through their banks. But in the United States, they're more likely to use PayPal.

This is good news for eBay, which phased out a competing payment system and bought PayPal in 2002 for $1.5 billion. eBay's revenues were up 16% in the last quarter of 2009, in good measure due to PayPal, which PC Magazine reports processed $20 billion worth of transactions for 81 million customers in that quarter alone. But it's bad news for U.S. banks, which it might be argued, should have been reaping the benefits eBay is now enjoying.

In fact, that's exactly what Anil Arora argues, and as CEO of Yodlee (the company that makes the software running the lion's share of the online-banking operations in the United States), he's in a pretty good position to know.

PayPal shouldn't exist, he maintained in a recent interview with Reuters columnist Felix Salmon. "After all," as Salmon explains, "it's not needed in other developed countries, where people can happily transfer money into anybody else's bank account without either party paying a massive fee. But in America, the short-sighted desire to keep those transfer fees allowed the banks to concede the field to the dot-com upstart."

Why did the banks allow this to happen? According to Arora, it's "because they weren't asking consumer-oriented questions."

I couldn't agree more. In theory, start-ups like PayPal that take aim at your customers should be at a huge disadvantage. You should know a great deal more about your customers than any start-up could and be in the best position to spot new opportunities to serve them. But in practice, start-ups are able to pick off your customers because, rather than ask, as you do, "What would make people want to buy my products?" they ask, "What can I produce profitably that customers want?" Very often, the answer is, "Something that requires a different business model than your company is currently using." This is where the start-ups have the edge — with no legacy business model to defend, they're free to focus entirely on serving customers' needs with a business model uniquely suited to doing so.

In this regard, the federal legislation curbing banks' abilities to charge hidden fees is a blessing in disguise. Rather than cling to their current fee-based business model, banks may have little choice but to do what I argue all companies should be doing as they seek to replace demand that may never return to pre-recession levels — look for transformational growth opportunities by developing new business models to fulfill jobs customers really want done.

Opportunities to serve your existing customers using a different business model is one of the two main ways companies can achieve transformational growth, the other being innovations that open up whole new markets. The former I call "white space within;" the latter, "white space beyond." I label them "white space" opportunities not because they're opportunities no one else is considering or opportunities that reside in places no one has gone before, but precisely because they require your company to go somewhere it can't go with its current business model. That makes them very hard for your firm to spot or realize, but not so hard for a start-up — or, conceivably, for a competitor already running under a more compatible model.

Looked at this way, it is easier to see how particularly dangerous it is for your company to ignore other firms' novel, low-margin offerings in your own market. These forays into your "white space within" are not just difficult opportunities for your company to fullfill, they are other companies' low-margin disruptive innovations. If someone thinks up a clever way to serve customers in your white space beyond — that is, in a market you currently aren't in — it's too bad if you could have done it first, but it's not necessarily tragic. If someone thinks up a way to siphon off your customers through low-margin opportunities in your white space within — opportunities you find so difficult to address that you chose to ignore them — that can be fatal.

Just ask the big U.S. steel companies, which, as Clay Christensen famously recounts in The Innovator's Solution, were at first untroubled when steel minimills took away their least profitable customers using a new steel-making technique that produced a somewhat lower-grade steel at far lower cost. By the time they understood the threat, the minimills had steadily improved their new business model and their products, and eventually chewed up the big steel companies' entire customer base from the bottom up.

It's probably too late for the banks to go head-to-head with PayPal by setting up their own alternative systems. But it's not too late, Arora suggests, for the banks to take another look at new kinds of profitable possibilities.

Turns out Arora thinks banks have a lot of scope for offering services customers could want. Yodlee is sitting on a database of some 23 million users managing $3 trillion, which it's opening up to outside developers in much the same way Apple has opened up its iPhone and iPad to app developers. Arora envisions apps that might warn consumers when they're about to incur one of those well-hidden bank fees or compare different banks' offerings in much the same way that Progressive insurance does with car insurance — and even a payment widget that might compete directly with PayPal.

Banks can look at this merely as a threat to the fee-based banking model — and a big leg up for no-fee banks like Ally — or as an opportunity to join with Yodlee and recast their business models to profit in some more consumer-friendly way. If some enterprising financial institution spent as much energy focusing on business model innovation as it has on propping up its fee-based strategy, it might see in its vastly changing competitive landscape not just threats but a rare chance to get back the business it's ceded to a nimble start-up.

Read on The Harvard Business Review

Yesterday the company announced its intentions to offer corporations the opportunity to sponsor Tweets. So-called "Promoted Tweets" will appear when people search for particular terms. Only a single sponsored Tweet will appear alongside search results. The Tweet will appear as long as it demonstrates "resonance" with the audience by being clicked or re-Tweeted. Twitter doesn't plan to charge companies whose sponsored Tweets don't generate high resonance. Presumably Tweets with high resonance scores will pay price premiums.

What's to like about this move? While it's easy to dismiss "Promoted Tweets" as just another advertising play, Twitter's attempt to measure resonance is intriguing. Remember, companies don't advertise for advertising sake. Rather, they advertise to help them achieve other business objectives, such as attracting new customers, or further enhancing brand loyalty. Finding novel ways to track the impact of advertising — and pricing that advertising accordingly — carries interesting potential.

Also, Twitter recognizes that its quest to develop its business model is just beginning.

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

My first thought was, "Wow, what a wonderful world we live in! Crystal clear video on multiple platforms anywhere in the world." My second thought was, "I can't remember the last time I saw the end of a weeknight Sox v. Yankees game. Twelve hour time zone differences have their advantages." (I'm in Singapore.)

My third, most important thought was, "What a wonderful job Major League Baseball has done building a new growth business."

A decade ago, MLB brilliantly decided to centralize its Internet operations. Each of the major league teams signed over control of their digital assets to a newly created organization called Major League Baseball Advanced Media (MLBAM). Each team agreed to invest about $1 million a year for several years to kick-start MLBAM's growth.

When MLBAM started, it wasn't yet feasible to offer streaming video online, so MLBAM's first commercial product was online audio feeds. Its primary target was passionate baseball fans that had moved but still wanted to be able to follow their hometown team. To minimize conflicts with the clubs, it only let people listen to out-of-town games.

Over the last decade, MLBAM has steadily improved its product, adding streaming video, upgrading the quality of that video, and bringing video to mobile devices like the iPhone. While MLBAM doesn't share its financial figures publicly, analysts suspect that it pulls in more than $500 million a year.

Profits from the venture are split equally between the 30 major league teams. Over time, perhaps online offerings will generate sufficient revenues to balance out disparities in local television revenue between clubs in large media markets and clubs in smaller media markets.

Established companies looking to create their own growth businesses can draw four lessons from MLBAM's success:

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

At the heart of Switch is this framework that sets out three ways change happens:

1. Direct the Rider (the conscious mind), eliminating what looks like resistance but is more often a lack of clarity by providing crystal-clear direction.
2. Motivate the Elephant (the subconscious), eliminating what looks like laziness but is more often exhaustion by engaging emotions to get them on the same path as you.
3. Shape the Path (the situation), eliminating what looks like a people problem but is more often a situation problem, by making the environment more conducive to the change you seek.

Switch co-author Dan Heath answered questions I sent him about how Switch works from the perspective of an innovator:

Q. What are Switch’s main takeaways for innovators?

A. Switch discusses a simple framework for changing behavior. Innovators will need this skill more than most people, since they need to convince their colleagues to adopt new practices and their customers to embrace new products. One core principle of behavior change, which is particularly relevant to innovators, is that people rarely change because they are provided with information. Change comes from feeling, and the feeling provides us the motivation we need to overcome the nuisance of making changes.

So if you’re leading change, you should ask yourself, “What can I get my colleagues or customers to feel?” As an example, consider Robyn Waters, who helped transform Target into the design powerhouse it is today. In convincing Target’s merchants to take a chance on new designs or new colors, she’d constantly show them things. See, look how using the bright blue Polo shirt makes your display “pop.” And they’d get inspired by what they saw and give her a chance. She never could have convinced them with a memo or a PowerPoint.

Q. What are the ways the relatively simple behavioral change of using checklists can drive more creative and innovative behavior (or outcomes)?

A. Checklists are basically insurance against overconfidence. A checklist will never generate an innovation — that’s not the point. What checklists can do is train your innovative mind on the right issues. Let me give you an example. There’s a classic study in psychology that asked students to come up with a solution for their university’s chronic parking problem. Ideas ranged from raising parking fees to creating more “Compact Only” parking spaces. After the ideas were collected, a panel of experts assessed them — eliminating wacky or impractical options — and identified a set of “best solutions”. The average individual brainstormer came up with 30 percent of the best solutions, which is pretty good for a solo effort. Here’s what’s not so good: The brainstormers confidently predicted that they’d identified 75 percent of the best ideas. Whoops.

So imagine if we’d provided those students with a checklist of “solution categories” to guide their thinking about the parking solution. We’d remind them to think about things like “solutions that raise the cost of parking” and “solutions that help more cars park in the same amount of space” and so on. It would have sparked their thinking and kept them from forgetting key areas of consideration.

Q. If a company’s goal is to help its employees become more innovative, which is the best approach? Direct the Rider, Motivate the Elephant, or Shape the Path? Is there a desired combination for increasing more creative, innovative behavior? Or would the solution be very situation-specific?

The solutions will be situation-specific, but the strategy won’t be. If you want your employees to be more innovative and creative, think in terms of a three-front campaign:

1. Provide crystal-clear direction. In a change effort, what looks like resistance is often a lack of clarity. For instance, what does it mean to be more “creative” or “innovative”? Different organizations would interpret those terms very differently. Do you want people to submit ideas for new products or processes? Do you want them to spend more hours in the field shadowing customers? Do you want them to build prototypes of their designs more rapidly? A leader needs to translate aspirations into actions — so think in terms of the behaviors that you want to encourage.
2. Find the motivation. As mentioned earlier, change comes from feeling. Why should people bother to act differently? After all, they’ve been practicing the “old ways” of behaving for months or years. It will take enormous effort for them to retrain themselves. Why should they bother? The motivation might come from the desire to correct mistakes — imagine screening a video of a customer who experienced a lot of hassle because of your team’s failure. Or you could imagine appealing to their desire to be the best — painting a picture of an innovation that, if executed correctly, would blow people’s minds.
3. Clear the path. If you want your team to be more creative and innovative, how many obstacles can you clear from their path? Can you create better IT systems to automate some of the bureaucratic duties that crowd out their creative time? Will you create PDA-free “quiet hours” so they can focus? Will you pay for offsite meetings so they can collaborate more easily? If you reflect on your own experiences, you’ll surely realize that there were some environments in which you found it easy to be creative and others where it was impossible. How can you create an environment that makes it easy on your team?

Q. Driving innovation within a company often requires people to embrace contradiction – think analytically yet also think metaphorically; focus on the near-term result yet also think out to the future; drive incremental innovation to keep the near-term bottom line growing yet also drive breakthrough innovation to keep the company growing into the future. Obviously it’s important to know when to switch focus. But how do you change into someone who has this capacity, when hardly anyone has it naturally? What do you change about yourself to be able to do this?

I see these more as balancing acts rather than contradictions. E.g., you need a balance of short-term focus and long-term focus. And I disagree with you — I think we all have this capacity to balance. But sometimes we’ll end up out of balance — say, too focused on short-term results — and then we’ll need to correct the situation. And that’s when the strategy discussed above — clear direction, emotional motivation, and a clear path — can be employed.

People tend to moan and groan about change, but the fact is, we’re all pretty good at it. People get married, they have kids, they switch jobs, they move cities, they embrace new technologies, they eat new foods and wear new clothes. Of course, that doesn’t mean your change at work will be easy, but it does mean there’s no one on your team who lacks the capacity for change.

I suspect the Anthony family will use the iPad to browse magazines, watch videos, and waste time with applications, with the laptop reserved for "real work" and the Kindle for "real reading." Interestingly, even as manufacturers gear up to create 3-dimensional televisions, the TV is the one screen that will increasingly become marginalized in our home.

Only Apple can inspire a fierce debate — before launch! — about the degree to which the iPad is going to meet almost un-meet-able expectations. From my perspective, it's just too soon to tell.

You see, I'm waiting for the twist.

Let's not forget that when the iPod launched, there was no iTunes, and certainly no $0.99 songs. When the iPhone launched, there was no AppExchange, and certainly not one with more than 150,000 applications. Yes, the iPad will facilitate the creation of improved applications, and yes, it does have a bookstore, but assessing its real disruptive potential requires waiting to see whether Apple introduces an iTunes — or AppExchange-like — twist.

I suspect that twist will tie into the moves Apple has been making in the advertising space recently, such as its $275 million purchase of Quattro Wireless in January, several prominent hires, and the unveiling of its "iAd" platform next week.

Google has created a $180 billion behemoth with its innovative search-based advertising program, but there remains room for substantial disruption in the advertising world. I've said before that even search is still in its early days, with companies and consumers still facing significant hurdles that stand in the way of solving the real problems in their lives.

Further, massive potential for mobile advertising hasn't translated into massive dollars — estimates suggest the mobile advertising market in the United States was less than $500 million in 2009. Meanwhile, Google makes $500 million in profit a month.

The iPad could be a great vehicle for Apple to take a run at a number of different business-oriented solutions. One interesting thing to watch will be the degree to which the company consumers absolutely love can maintain that goodwill as it serves businesses. I certainly wouldn't bet against it, but it will be a tricky line to toe.

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

One of the pieces of guidance that the professors offer is to "consciously complicate" your life by engaging in experiments. As the article notes:

"Like scientists, innovative entrepreneurs actively try out new ideas by creating prototypes and launching pilots ... The world is their laboratory ... Experimenters construct interactive experiences and try to provoke unorthodox responses to see what insights emerge."

That sounds daunting. But it doesn't have to be.

For the past decade or so, I've had a very defined morning routine. After I get out of bed, I have a cup of coffee. The gap between alarm and caffeine rarely stretches much beyond 10 minutes.

Then, one random week, I was in a circumstance where having coffee first thing in the morning just wasn't possible. To my surprise, I actually found myself functioning better in the morning when there was a longer gap between waking up and having coffee.

It could have been a random occurrence tied to the specifics of the circumstance, so I decided to experiment. One day I'd wake up, work for a bit, have breakfast, then shower. The next day I would wake up, immediately have a shower, have breakfast, and work. These weren't perfectly controlled experiments, but I did notice a consistent pattern. I felt less tired when I didn't have coffee immediately after waking up.

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