Category Archive

“…the tough get going,” goes the saying. Does this hold for innovators and R&D?  Apparently not.

According to the Financial Times (Monday March 17), America’s 10 leading technology companies are reining in their R&D spending in the face of the American and global economic slowdown. Last year, 2007, these companies spent $40 b. on R&D, out of $426 b. in revenues, or less than 10%. While revenues rose by some 9%, R&D spending grew only by 4%. Look for further restraint on R&D this year, as the dollar plunges and global markets become more uncertain. 

An exception among the ten was Google, which raised its R&D spending by 73% last year, to $16 b. That sum, however, is small compared to the R&D spending leader, HP, where over $100 b. was invested in R&D. 

Years ago, TIM took a group of its startup companies on a benchmarking visit to Boston. We went to Teradyne, leading supplier of semiconductor equipment. There were told that Teradyne maintained its R&D spending in the face of a drastic drop in revenues in the wake of the 2000/1 recession.

Why? Simple, we were told. Recessions are an ideal time for great companies to gain market share, by boosting its innovation efforts while others are cutting back on them. It worked. Teradyne today is stronger than ever.  
As we face a global downturn, companies would do well to maintain and perhaps even increase their R&D budgets. Especially when it appears that most R&D-intensive firms are doing the opposite. 

This is straight from science fiction.

The Masters of the Universe, Bear, Stearns, fifth largest investment bank in the United States, whose stock price once soared well above $100, is out of business. Last March 12, its stock was worth $63.50; by March 14, it had fallen by half, to $30. And yesterday March 16, it was announced that their arch-rival and competitor, J.P. Morgan-Chase, bought all Bear, Stearns shares for… $2 per share. Some $20 b. in paper wealth went up in smoke. Investors pulled their money out of Bear, Stearns so fast the Fed did not have enough time to reliquify the bank. Bankruptcy happened at the speed of light.
Innovation is to blame.

Creative financial engineers found unique innovative ways to combine bad mortgages (the euphemism is “sub-prime,” but that means bad) with good ones, mixing them in complex ways that disguised the high risk involved, and revealed only the relatively high return (rate of interest). Most of the banks and investors who bought these so-called “collateralized debt obligations” (packages of mortgages that became collateral for bond issues) neither fully understood them, nor understood the risks involved. As often happens, when investors fail to adequately measure, manage and understand risk, the risk chickens come home to roost. People failed to pay, as interest rates rose, and the house of cards built on this financial innovation collapsed.

Alan Greenspan says we are now having the worst financial crisis since WWII – basically, since 1929. At that time, people yanked their money from banks and banks went bankrupt. It is now happening again. And, alas, financial innovation is to blame.

As a long-time runner, I am keenly aware that one day my knees will no longer agree to let me run any more. One bout of arthroscopic surgery (to repair torn cartilage) helped, but, for many of us, the knee handwriting is on the wall. Recently, on a trek to climb Kilimanjaro, one member of our team named Jim revealed that he had almost no cartilage in his knee. His climb was his last adventure before a dreaded but essential knee replacement.

Essential? A remarkable innovation, reported in the latest issue of The Economist, by the leading American biotech company Genzyme promises to help those facing aching knees, or knee-joint replacements. Here is the idea:

Genzyme‘s approach takes a small sample of healthy cartilage cells from the damaged knee and uses them to grow millions more cells in a laboratory. The doctors then insert the new cells. In most cases, the implanted cells grow without rejection, since they share an identity with nearby cells. The trial showed that almost a decade after the initial surgery, nearly 90% of the patients who had shown an early positive response to Carticel (about three-quarters of the total) still enjoyed those benefits.

Like all great ideas, one asks – why didn’t they think of that before? Huge resources have been invested fruitlessly in trying to invent artificial cartilage. Cartilage cells, it turns out, are among the most amazing of the body’s cells – able to expand, contract, and grow when needed, cushioning joints and enjoying appreciation only when the cartilage wears away and leaves us with severe pain. Genzyme has found a way to let the body use its own cartilage cells. Potentially millions of people will be eternally grateful.

Some readers may recall Errol Morris’ Oscar-winning 2004 documentary The Fog of War, comprising a long interview with Robert McNamara, Presidents Kennedy and Johnson’s Defense Minister and former CEO of Ford. Always off-screen, Morris simply films and interviews McNamara and brings his words of wisdom to the viewer.

Here are McNamara’s 11 lessons of life. He applies them to his experience in government, specifically to the Cuban Missile Crisis (1962) and the Vietnam War. But they are equally applicable to innovators and entrepreneurs:

THE FOG OF WAR is built around eleven lessons from the life of Robert McNamara.

Lesson #1: Empathize with your enemy.
Lesson #2: Rationality will not save us.
Lesson #3: There’s something beyond one’s self.
Lesson #4: Maximize efficiency.
Lesson #5: Proportionality should be a guideline in war.
Lesson #6: Get the data.
Lesson #7: Belief and seeing are both often wrong.
Lesson #8: Be prepared to reexamine your reasoning.
Lesson #9: In order to do good, you may have to engage in evil.
Lesson #10: Never say never.
Lesson #11: You can’t change human nature.

Empathy is vital – not only with your enemy (competitor) but with your customers. America won the 1968 Tet battle, some 75,000 Vietnamese soldiers died – yet scenes of carnage on US TV catalyzed opposition to the war. In this sense the battle was lost. Failure to empathize with both friends and enemies was fatal.

Rationality is overplayed; people usually behave, if not irrationally, then non-rationally. Try to understand this non-rationality and employ it. Proportionality is important, in business and in war. Using your time and resources in proportion to priority, urgency and potential is important. And basing decisions on real data, especially in product design, is often underplayed. Be skeptical – even what you see may be misleading. Challenge your beliefs constantly; ‘read’ human nature, you probably cannot change it. And, of course, never use the word ‘never,’ because never is never forever.   

What would Google and its ‘do no evil’ say about you may have to do evil to do good? Perhaps, in defending a nation, this may be true; but rarely if ever, in business. 

Arie Rutenberg, former student of mine at Technion, went on to build Israel’s leading advertising agency Kesher Bar-El (now, McCann-Erickson). He has now embarked on a new career. His new venture is called Club 50, founded together with Amnon Herzig, and offers a variety of services to those over 50 who seek to build a second productive life. It already has 150,000 members.

Ruttenberg enlisted Carlo Strenger, Tel Aviv University psychologist, as co-author. Their new book Life Take 2: The Freedom of Midlife will appear soon, and their Harvard Business Review article “The Existential Necessity of Midlife Change” has just been published.  

“Roll up your sleeves,” they advise. “Midlife is your best and last chance to become the real you.”  

We often believe that innovation and entrepreneurship are only for the young. But take, for instance, Shimon Eckhaus. A successful serial entrepreneur, he embarked on his career only after retiring from Rafael (Weapons Development Agency).  He attributes his success to his age. “I did not have time to fail,” he says. So he looked for product ideas that were very practical, met a need and could bring immediate revenue. For him, “Life Take 2” brought adventure and satisfaction.

My friend and co-author D.V.R. Seshadri provides another example – an Indian ophthalmologist, who instead of retiring to a rocking chair, ‘rocked the world’ with a new business design for cataract surgery that restored sight to many many thousands of Indian villagers. Here is the story, in brief, as recounted in Seshadri’s case study:

In 1976, Dr. G Venkatataswamy, popularly known as Dr.V, retired from Government service as Professor of Opthalmology in Rajaji Medical College, Madurai. On retirement, … he returned to Madurai to devote himself to the mission of eradicating preventable blindness among the poor in the immediate geographic area, southern Tamilnadu. He established an 11-bed facility in rented premises – the Aravind Eye Care Clinic, with support from his family members and other well-wishers.  They adopted a model that judiciously combined both business and social orientations – in which one paying patient would subsidize TWO free patients. This has resulted in a SUSTAINABLE organization which generates enough surpluses to fund its own expansion activities, with minimal external monetary support. It has expanded throughout India, became the gold standard of eye care for the poor worldwide, and restored sight to many many thousands of Indian villagers suffering from cataracts. 

What does the success of several Japanese baseball players in America’s Major League Baseball (for instance, Ichiro Suzuki, only major leaguer to have 200 hits or more in his each of his first seven seasons) have to do with innovation?

According to the International Herald Tribune (Monday March 10, p. 17), the answer is: a combination of a creative master coach, American Lou Piniella (former Yankees star and now a manager), and the discipline of Japan’s culture, expressed in its hitting stars.

Japanese batters in America, along with Piniella, have developed an innovative hitting style. They stand closer to the plate, and instead of stepping toward the pitcher when swinging the bat, they step toward first base (when hitting to right field), or toward third base (when hitting to left). In this way, they can hit the ball wherever they wish, almost. This hitting style requires many many hours of practice, and great discipline. The Japanese players have it. It is part of their culture. Together with the innovator who developed the approach, creativity and discipline make a winning combination. Recently Kosuke Fukudome has followed in Suzuki’s footsteps. So has the Yankees’ great hitter Hideki Matsui.

“Japanese players are taught to hit, not to ‘slug’,” Piniella says. He thinks it would be “hard teaching their style to our [American] hitters.”

Perhaps this applies to innovation. Creative ideas are the easy part. Disciplined operational excellence in implementation is the hard part. If only Israeli innovators could be as rule-breaking, creative, and unconventional as Israelis – and as disciplined and methodical as Japanese. If they could, they would hit many more startup ‘home runs.’

Hideki Matsui, hitting in the 2003 World Series 

Innovate by designing and selling products specifically to the very poor?

Recall the rather cynical statement that the Lord of the Universe loves the poor, because he made so many of them. Some 1.4 billion people on earth have daily income of less than one dollar, according to the World Bank. How can this possibly be seen as a promising market?

One of the world’s leading management thinkers, C.K. Prahalad (co-author, with Gary Hamel, of the most-read business article, The Core Competency of the Firm) wrote a book in 2005 making the extraordinary claim that the poor can best be helped by market forces. Let companies design and sell them products, he wrote (in Fortune at the Bottom of the Pyramid, Wharton Press), for profit. Do good..and do well. Market forces work far better, he wrote, than do-good institutions, NGO’s or governments. 

How to do this? Among his dozen key principles: 

* focus on quantum reductions in price and cost (e.g. Tata’s new $2,000 car – not exactly for the very poor, but certainly a quantum reduction).
* blend old and new technologies
* scale operations across countries
* redesign products from the outset (e.g. Hindustan Lever’s shampoo that works best in cold water), to work in hostile environments.

Examples? The global Grameen micro-credit bank; India’s e-Choupal project, creating networks of farmers that bypass rapacious middlemen; S.C. Johnson Co.’s partnership with Kenyan slum youth to provide home cleaning and waste disposal services.

Ever looked closely at a U.S. dollar bill? Notice the 13-layer pyramid? In 1932 President F.D. Roosevelt said on the radio, “these unhappy times [Depression] call for the building of plans that rest upon… the forgotten man at the bottom of the economic pyramid.” In 2008, times are perhaps not as unhappy – but are still miserable for the very poor. There are fortunes at the bottom of the pyramid. We just need entrepreneurs with sharp enough vision to see, and develop, them. 

Think different, goes the Apple slogan. But how?

Well – instead of thinking new, how about thinking old? How about going back to the future?

BBC’s Business Day reports on a fine example. In San Francisco, Delhi, Dubai and elsewhere, a powerful trend is sweeping the world of cycling. Increasing numbers of people are buying “60’s bikes”, or fixed-gear bikes – bicycles that have only one gear, and no way of braking except slowing or dragging a foot. They are simple, tough, durable, and build fitness (imagine riding up a San Francisco hill in first gear!). This trend goes against the trend toward $2,000 18-gear bicycles along with colorful Tour de France fashion in skin-tights, helmets and matching water bottles.

Fixed-gear 60’s bikes are part of what is known as the ‘austerian’ movement – austere is good, less is more, and do with cheap and simple rather than expensive, showy and conspicuous. Austerianism, in turn, is part of the new pro-environment green movement.  

These bicycles are an example of how nostalgia can be a strong basis for innovation, given in particular the growing numbers of older people worldwide.  

 
A fixed – gear bicycle: Ultimate simplicity.

Forty years ago, the Beatles released their album, Sergeant Pepper’s Lonely Hearts Club Band, on June 1, 1967. Apart from the wonderful songs (see the list below), this pathbreaking album contains at least seve lessons for innovators. Here they are:

1. Innovation is the key response, perhaps the only response, to waning popularity – in the face of the nearly irresistible tendency to do “more of the same”. In 1967 Beatlemania was waning. The Beatles had stopped touring and it seems that they were burned out. A Beatle statement that “we are bigger than Jesus” got them essentially expelled from Philippines.   The Beatles went into the recording studio, for five months – a remarkably long time, then, for one album – and emerged with Sergeant Pepper. It took huge risks – and was rocket fuel for renewal of their popularity.

2. Technology is a key source of innovation. There were several new technologies in Sergeant Pepper, including the new Dolby noise reduction, automatic double tracking (invented especially for the Beatles), varispeeding, and a novel method for pressing LP’s. The Beatles were not afraid to use every possible one.

3. …But the technology was driven by product and process innovation. The Beatles innovated in the music, instruments, arrangements and even words. They used a sitar (George Henderson), and a miniature trumpet player from a London symphony orchestra, and also a harpsichord, as well as producer George Martin’s harmonium. Martin was a key innovator – he had a background as a classical musician. 

4. Innovate everywhere: everything about Sergeant Pepper is novel – even the cover. The cover shows the word “Beatles” written in flowers, in a flower bed, and behind that the Beatles dressed as if they were a real Lonely Hearts Band, with a crowd of famous people behind them (Oscar Wilde, Marlene Dietrich, Karl Marx, Marlon Brando, etc.). The album was meant to be heard as a whole, not as individual songs, as one of the first ‘concept’ albums. The lyrics to a John Lennon song came nearly word for word from an old circus poster Lennon once bought. Like the DC-3, which was a portfolio of innovations, Sergeant Pepper combined many breakthrough ideas. 

5. Innovation is best when its implementation is at its best. Beatles hired only top-flight session musicians (musicians hired just for the recording), and the 5 months they invested reflects their perfectionism. (150 days for a dozen songs, or nearly two weeks per song). 

6. True innovations find commercial success – not always, but often. Sergeant Pepper was the #1 album in 1968 for 23 straight weeks. The CD, re-released in June 1987, was #3! and then again, in 1992, on its 25th anniversary, re-charted at #6. 
 
7. Finally, innovation is about teamwork. All the songs were written by John Lennon and Paul McCartney. While each has written great songs on their own, the songs they wrote together are unparalleled for their novelty, creativity and appeal. Lennon and McCartney were utterly different in personality, lifestyle and values. That diversity perhaps strengthened their powerful collaboration.

Sergeant Pepper Tracks
1 Sergeant Pepper’s Lonely Hearts Club Band
2 With A Little Help From My Friends
3 Lucy In The Sky With Diamonds
4 Getting Better
5 Fixing A Hole
6 She’s Leaving Home
7 Being For The Benefit Of Mr. Kite
8 Within You, Without You
9 When I’m Sixty Four
10 Lovely Rita
11 Good Morning
12 Sergeant Pepper’s Lonely Hearts Club Band (Reprise)
13 A Day In The Life

As a visiting professor at MIT, I quickly learned that Nick Negroponte was no ordinary professor. We academics are trained that science proceeds in incremental small steps. Nick always was a visionary. As a computer science professor, in 1977 he saw the future was in the convergence of computers, media, publishing and entertainment. He draw a simple diagram – converging circles – and went out to raise $10 m. to start a Center to explore the implications. No American company would fund it. The Japanese got it – and wrote him a $10 m. check, giving birth to the now world-famous MIT Media Center – a playground for ideas and creativity that has to be seen to be believed. 

Negroponte is now on a two-year leave from MIT. His vision: one laptop for every child. There are 55 m. children in Brazil, most of whom do not get proper schooling, or even any schooling. There are 200 m. children in China who need schooling.  Negroponte wants every child to have a laptop. To do this, the price of the laptop must fall to $100. Right now it is $179 – but economies of scale are driving the price down. What about American kids? Well – parents can buy one, but a condition is that they must be two, and give one to a needy child abroad.

Negroponte’s OLPC organization is not-for-profit, and he himself seeks no profit. His vision is simply to implement his vision for the world’s children.

But there are obstacles. Negroponte selected AMD as the chip supplier. Intel, whose chips were too costly, has fought back and launched its own $100 laptop, called Classmate, which it offers to Brazil and other countries; Intel Chair Craig Barrett himself spearheads the effort.

Negroponte’s laptop is designed by the world’s top ‘geeks’. Its battery life will one day reach 12 hours. Its screen is phenomenal – easily visible outdoors in full sunlight. A hand crank generates electricity, when the battery runs down. There are no ‘holes’ or connections, and the computer can be rained on or dropped or dumped in the sandbox… and survives. It has two green ‘ears’ that give it far better receptivity for WiFi than ordinary computers. It looks neat – it’s green and white color scheme make it friendly and attractive for kids. Most of all, it is simple. Negroponte designed it, so that one child can teach another, or children can simply learn to use it on their own, in three minutes – and they do!  

Lessons for innovators from OLPC? Perhaps a key one – said in the Bible centuries ago. The prophet Isaiah said: “Without vision a nation perishes.” (Isaiah 61, 11).  In Hebrew, it is even more emphatic – “perishes” translates truly as “falls apart, crumbles”. Without vision, innovation falls short. What drives Negroponte to ultimate success, I hope, is his sweeping vision. He has used vision in the past to attain outstanding innovative success, with his Media Lab. And I hope his world-embracing vision will succeed again.