Category Archive

Business Week’s 2007 “Most Innovative Companies” list has been published. The rankings are done annually by Boston Consulting Group, based on a global survey of senior managers. There are several noteworthy surprises. (See below).

* Walt Disney Co. soared from 43rd in 2006 to 8th, partly because of its launch in Russia and its pioneering efforts to stream ads in Internet videos. This is one of the most dramatic rises in the innovation rankings in history. Built on creativity, Disney appears to have gotten back its creativity DNA.
* Despite a bad year, Wal-Mart rose to 11th from 20th, because of its supply-chain innovations, widely-admired globally.
* 3M, once the gold standard of innovation, ranked 3rd in 2006,  ranked only 7th in 2007, falling four places.

What happened to 3M? On the face of it – nothing. In 2006, 3M’s revenues, at $22.9 b., rose 8%, but its profits, totaling $3.9 b., rose fully 20%. Its head-count grew by 9%, to 75,333, and above all, 3M’s famous “margins” (note its widely-cited slogan, will [this innovation] make 3M margins? – a 3M religion) were stellar: 17% net margin (net profit as % of revenues) and 39% return on shareholders’ equity. 

In 2005 3M CEO James McNerney left to become CEO of Boeing (a $61.5 b. company). McNerney came to 3M in 2000, from GE, having failed to succeed Jack Welch. He brought to 3M a relentless drive for greater efficiency. This included Six Sigma. The result was to fatten 3M’s profits – and endanger its future.

In our book Innovation Management, Seshadri and I note that sometimes, value creation (driven by innovation) and cost reduction can be bitter enemies. 3M seems to be a living example. Wall Street loved McNerney’s bottom-line impact. But  MIT Professor thinks innovation projects at 3M “took a backseat” once Six Sigma settled in. “The more you hardwire a company on TQM,” von Hippel notes, “the more it is going to hurt breakthrough innovation.”

Buckley, a Ph.D. chemical engineer, is “opening the money spigot”, according to Business Week (June 11 issue), to get the creative juices flowing again, hiking spending on R&D, acquisitions and capital spending. 3M’s R&D budget will grow 20% this year, to $1.5 b. Moreover Buckley is funneling cash into 3M’s 45 “core” technologies. Buckley is refocusing 3M. McNerney invested in 3M’s innovative skin cream Aldara. Buckley sold the pharma business, including the cream, for $2 b. 

The bottom line? “We feel we can dream again,” says a 3M senior manager. Look for 3M to rise in next year’s global innovation tables.
 

Source: Business Week June 11 issue

This is a brief tale about innovation in New Zealand.
 
According to Richard Taylor, founder of the New Zealand-based Weta Workshop, New Zealanders have to be innovative – in a rural setting, you have to be able to improvise and make things with your own hands, because you are far away from people who will do it for you. 

Taylor, as a child, loved sculpting; he made sculptures with mud from riverbanks. Later, he made a living by making sculptures for weddings out of margarine.  That passion ultimately evolved into Weta Workshop, a film and television effects facility that created Gollum, the  Tolkien character in Lord of the Rings that won an Academy Award for special digitized effects (its lifelike image, partly because WETA found a way to actually show blood corpuscles beneath Gollum’s skin, known as ‘subsurface scattering’). Weta also created the amazing modern version of King Kong.

The name ‘weta’ comes from a huge New Zealand bug, in turn named after the Maori word Wetapunga, or “God of ugly things”. 

Film producer Peter Jackson hired Taylor, and the WETA team, to do special effects for his Lord of the Rings trilogy. That film too was an innovation – filming three movies at once, in the New Zealand mountains, during a 15-month period, in adapting Tolkien’s Lord of the Rings masterpiece for the screen. The opening installment alone grossed $870 m. worldwide. 

Jackson knew he would need the Gollum character for his third movie, (The Return of the King, 2003) – but the technology for it did not yet exist. Yet he contracted with WETA, hoping the digital-effects industry would provide a solution in time.  Thanks to Taylor, it did. Gollum, a truly ugly thing, is based on a real person, Andy Serkis, and his voice, features and movements. Gollum was created by digitally ‘painting out’ Serkis and replacing him with Gollum – done frame by frame.  And every frame of Gollum’s performance (and there were a great many) took four hours to compute!  

The key elements that embody all pathbreaking innovations are all there in Gollum – risk taking, improvisation, vision, dreams, creativity. It is remarkable how the character Gollum assumes lifelike reality on the screen. And equally remarkable how in remote New Zealand a former margarine sculptor has revolutionized the way movies are now made.                                                         

A  recent BBC Program, called 1Xtra, “Can’t Knock the Hustle” featured an interview by Alvin Hall with Sean Carter, better known as the rapper JayZ.
 
Sean was born and raised in the Bedford-Stuyvesant projects, in Brooklyn, and dealt drugs when he was 16. Today his nine rap albums sell millions, and he has personal wealth of $320 m. – wealth driven by JayZ’s remarkable skill at platform innovation. He recently completed a world tour.

Here is how he did it. JayZ built his empire on ‘platform innovation’- leveraging a innovation into an entire platform, or range, of products and services – with common sense and intuition. For more sophisticated theory, readers are referred to the fine book by Annabelle Gower and Michael Cusumano, Platform Leadership: How Intel, Microsoft and Cisco Drive System Innovation. 

“I did not have lofty goals,” says Carter. He got his name, JayZ, because, he says, as a youth he had an older demeanor and was called, as a result, Jazzie Do, in street slang. Later, he shorted it to JayZ. He fell into rap by accident. When he was 9,  one of his friends, on the street, was able to speak in rhyme, extemporaneously, for 15 minutes. JayZ was impressed and wanted to learn to do it too. He did. Meanwhile, as a 16-year-old he dealt drugs.  

He got into rap by chance, and cut an album. Most artists look for an artist’s contract from a major music company. But JayZ started his own company, Roc-A-Fella Records. They pressed CD’s, 300 at a time, in Brooklyn, then sold them on “H” St. near a hot-dog stand out of their car trunk. He forged a distribution deal – the major companies distributed JayZ’s rap tunes, which were a hit, leaving most of the profit with JayZ.

I was not afraid, he said. He could always return to dealing drugs. His street trade taught him the basics of selling and dealing with people. 

Once, at a concert, JayZ and his team noticed many of the participants were wearing “Iceberg” T-shirts bought at a concession booth. He approached the company and offered them a tie-in deal. They refused, scorning the rap artists. So JayZ started his own clothing company in 1998. He bought two sewing machines and installed them in their dingy offices, so rundown they had to leave at 6 pm because the rats came out at dark.

The first year, Roc-A-Wear sold $90 m. in apparel! The company then nearly crashed, because of disorganization. “Truth trumps intelligence,” JayZ says. We missed shipments, payments… he says. He knew he needed help. He brought in a top strategic investor: Russell Simmons, godfather of hip-hop entrepreneurs and founder of the company DefJam. Today Roc-A-Wear has plush offices in the Fashion District in Chelsea, Manhattan. And JayZ has become DefJam’s CEO. 

What is platform innovation? JayZ has used his own celebrity as an innovation platform, with clear tight synergies. He has a Sports Bar, 40-44, in Chelsea, which sells his own vodka brand Armadale, displays JayZ clothing and plays JayZ music. He has an endorsement deal with Reeboc, whose JayZ sneaker line is the fastest-selling in the company’s history. He has an endorsement deal with HP, and the JayZ-based campaign to sell laptop computers has them flying off the shelf. He is on the Board of Directors of the NBA team New Jersey Nets. JayZ’s strategy is not unlike that of Martha Stuart, who has leveraged her own celebrity and brand image into enormous market success, despite a stint in jail. And his personal wealth today is estimated at $320 m. – not bad for a poor black kid once trying to survive on the mean streets of Brooklyn. 

A 16th C. collector of proverbs named John Heywood wrote down this one:  Two heads are better than one. Now, in the 21st C., thanks to the Web, we can say: A million (10 million?) heads are better than one.  

A new book by Don Tapscott and Anthony D. Williams,  Wikinomics: How Mass Collaboration Changes Everything, emerged from a $9 million research project, showing how the Internet enables masses of people to participate in the innovation economy through social networking. In fact, social networking may be a far more powerful innovation than nanotechnology or WiFi.   

The name Wikinomics comes from Wikipedia (pronounced: weekie-peedia), the on-line user-written encyclopedia. Wikipedia, in turn, comes from the Hawaiian word for speed, wiki wiki, also  the name of the fast shuttle buses at Honolulu Airport. The name was used by Ward Cunningham for the first wiki site, in 1995, devoted to solutions to recurring problems found in computer programming. Larry Singer built Nupedia, in 2001, the first open-content peer-reviewed free encyclopedia; Wikipedia was created for writers contributing content to Nupedia. Sanger was astonished at the explosion of Wikipedia content and the number of users. 

How can businesses leverage this remarkable innovation? Writing in the latest issue of Forbes, Rich Karlgaard discusses the user network created by Cirrus, a maker of low-cost airplanes. Cirrus owners are dedicated fans of the product – so much so, they initiated an Internet message board, and began posting complaints.

Dedicated fans? Complaints? What Cirrus understood, and what many companies fail to understand, is that only users who truly care about the product take the trouble to post complaints – and  such postings are worth their weight in gold, providing data and information not available otherwise. COPA (Cirrus Owners & Pilots Association) members have launched, according to Karlgaard, a COPApedia, user-generated Cirrus encyclopedia modeled after Wikipedia. Cirrus gains invaluable information from it, for R&D, and it costs them nothing. “It learns about future wants, price points and likely sales volume”, notes Karlgaard. All Cirrus has to do is tune in and listen – and not fight back.

There is a major lesson here. Innovative companies can acquire great innovations from their own versions of COPApedia – provided they have the vision and patience to join them, rather than fight them.  

And, as Heywood said nearly 500 years ago: Better to bow than to break. Better to bow to the wisdom of thousands of users, than break their wisdom by battling it.