“Luck Favors a Prepared Mind”
Innovation is like athletics. The ability to innovate is similar to that of an athlete’s preparedness that requires constant training & preparation. Similarly, Innovation requires one to be curious, have a sense of purpose, willingness to explore and be ready to accept failures gracefully.
Successful innovation is like an Olympic athlete, it is usually a result of huge efforts: both in execution & preparedness.
Many small & medium sized firms often spurn innovation during good times; the companies tend to concentrate on execution and profit maximization and look at innovation only when competition introduces new products. Such sporadic rush towards innovation is risky and often disastrous. Instead, companies should constantly prepare for innovation.
How to prepare for Innovation?
Creative people always have the following traits:
1. Curiosity
2. Sense of Purpose
3. Willingness to explore
4. Ability to withstand failures
Most people have these characteristics in their childhood – but are suppressed during adulthood.
Firms can use these traits in a productive and non-risky way by having idea generation sessions at regular intervals. These idea generation sessions should be structured such that participants should concentrate on current problems and generate ideas around it. The benefits of such sessions are immense: Operational efficiency increases, people are encouraged to think, and develop new ideas, enhances curiosity among participants and builds a sense of purpose. Most of the ideas generated during these ideation sessions are usually simple ideas, and few will be truly path breaking ideas. (See: Ideas to Concept – Small Ideas are better )
Companies can afford the risks involved with small ideas – and over a period of time, the organization gains proficiency in taking an idea into business opportunities. Over a period of time the company gains enough expertise to take on bigger ideas – and creating path breaking products.
The ideation generation sessions must be followed by idea scrub to identify low hanging fruits (see: Innovation Management - Taking Ideas to Concept ) and then create teams to work on those ideas. The first task for the team is to develop a basic design/architecture for implementing the idea. The next step for the team is to develop a business plan for that idea and see the viability of the idea.
Once the team goes through the business plan phase, it will be clear to them on which ideas are work implementing and which have to be rejected. The teams that work on rejected ideas will know the reason – and prepare them to face failures. Care should be taken not to demoralize the teams – instead the members should be encouraged to come up with better ideas.
Train yourself regularly for Innovation & you will win.
As the saying goes, luck favors the prepared mind; success in innovation goes to those who train for it. Companies that have developed the skills for innovation are the ones that will be successful at it. Preparing for Innovation implies equipping the employees with necessary skills and giving them enough opportunities to practice those skills.
Saturday, August 23, 2008
Friday, August 22, 2008
E-Learning has huge potential in India
India celebrated its 61st Independence Day on August 15, 2008. Even after 61 years, a large section of the population does not have access to proper education. Barring the top schools under ICSE/CBSE system, the IIT/IIM/NIT/IIIT and few other elite universities, the education standards in rest of schools & colleges are poor. The need of the hour is to build a cost effective education system – which can deliver the best quality education system like that of the elite schools but at one tenth the price.
When I look at the challenge, I can see the answer in e-Learning. But then e-learning is not the right answer. E-Learning has been around for quite some time now, and is yet to make the mark. So what is that we are missing? This question got me thinking, exploring and brainstorming.
E-Learning in India
E-learning in India is miniscule when compared to traditional learning. E-Learning is limited to select few elite universities/colleges and top-100 Indian companies. (Plus fortune-500 firms that operate in India.) The amount of money invested on E-learning by top-100 firms is negligible when compared to the instructor led trainings. In the academic world, E-learning is almost non-existent.
This dismal picture hides the real potential of E-Learning and also reveals the reasons for the failure of E-Learning.
Challenges to E-Learning
E-Learning has not taken off in India for several reasons that range from faulty technology to government regulations.
The failure of E-Learning can be greatly attributed to wrong technology. The current PC & Web based technology is not suited for Indian conditions. The current technologies used in E-Learning were all developed in America – and is not suitable for India & other developing countries.
The technical barriers to E-learning in India are as follows:
E-Learning has a big potential in India given the huge population base and the rapid growth of the economy. However there are quite a few obstacles to be overcome. This article describes the problems which prevent e-learning from taking off. In the subsequent articles, I will talk about the possible solutions and the changes needed to make quality education accessible & affordable for all.
When I look at the challenge, I can see the answer in e-Learning. But then e-learning is not the right answer. E-Learning has been around for quite some time now, and is yet to make the mark. So what is that we are missing? This question got me thinking, exploring and brainstorming.
E-Learning in India
E-learning in India is miniscule when compared to traditional learning. E-Learning is limited to select few elite universities/colleges and top-100 Indian companies. (Plus fortune-500 firms that operate in India.) The amount of money invested on E-learning by top-100 firms is negligible when compared to the instructor led trainings. In the academic world, E-learning is almost non-existent.
This dismal picture hides the real potential of E-Learning and also reveals the reasons for the failure of E-Learning.
Challenges to E-Learning
E-Learning has not taken off in India for several reasons that range from faulty technology to government regulations.
The failure of E-Learning can be greatly attributed to wrong technology. The current PC & Web based technology is not suited for Indian conditions. The current technologies used in E-Learning were all developed in America – and is not suitable for India & other developing countries.
The technical barriers to E-learning in India are as follows:
- Low Computer Penetration
India has very low computer penetration. Currently only 2% of Indian population has computers at home. This means that e-learning via PC will be a non-starter.See: http://dqindia.ciol.com/content/50yrsIT/Perspective/2006/106123008.asphttp://dqindia.ciol.com/content/50yrsIT/Perspective/2006/106123008.asp - E-learning is based on computer platform with broadband Internet
Coupled with low computer penetration, the high price of Internet broadband & non availability of broadband in many parts of the country implies that very few people can access E-Learning content that is being created. - Technology Barriers.
Today’s LMS platforms used in E-learning are quite complex. The users are expected to have basic computer skills to operate. Given the fact that the entire audience for e-Learning is there for basic education – the current e-Learning platform is totally failure for the intended audience. - Language barrier.
Probably the biggest drawback of today’s e-Learning technology is the language – All the current e-Learning platforms & content are based on English language. Though India has a huge English speaking population – the target audience for basic education via e-learning are not proficient with English and with computers.
Technical barriers are not the only thing that is pulling back e-Learning. Apart from the technical barriers, there are business use case problems to deal with.
- Faulty Business models.
The current technology requires deployment of Learning Management Systems (LMS) running on a central server. The users have to log in via Internet or Intranet to access the programs. Reliable LMS software are expensive to license – it is about $25 to $100 per user per year (depending on the number of users), in addition there is need for several other software: database, web server, security systems etc. Plus there is the cost of licensing the learning content. The total cost of the systems & software itself has to be amortized over the number of users. This business model will work in a corporate environment where companies have proprietary content and are willing to foot the bill for e-learning system.
The current e-learning business models are best suited for corporate firms – where the users are not cost sensitive & users have sufficient computer skills. This model however is not suitable for a large scale deployment that will be required in an Indian scenario.
E-Learning has been successfully deployed in some of the universities abroad – mainly in the US & Europe, but here the cost was not a major factor. - Outdated government rules & regulation
Education system in India is governed by various governmental agencies. These agencies follow archaic rules that are designed to extend government control and prevent any form of innovation. The current rules do not exactly prevent e-learning, but the system does not encourage e-learning either. - Cultural mores and norms
Culture in India also hinders e-learning. The society considers classroom learning as “REAL” learning and any other form of “distance” learning is essentially second rate. As a result, people are naturally discouraged from opting for e-learning. On the contrary, Indian Universities have developed and promoted distance education – mainly through correspondence courses. These courses are offered only for higher education – as a substitute for college/university education.
E-Learning has a big potential in India given the huge population base and the rapid growth of the economy. However there are quite a few obstacles to be overcome. This article describes the problems which prevent e-learning from taking off. In the subsequent articles, I will talk about the possible solutions and the changes needed to make quality education accessible & affordable for all.
Tuesday, August 19, 2008
Customer Co-Creation and Innovation Management
In June 2008 I wrote about co-creation as an innovation strategy - New Age Innovation Strategy: Co-Creation with Customers. The challenge in capitalizing on the co-creation strategy has been to identify what is the value being created and how the company can leverage that. Over a period of time, I have noticed that many companies routinely co-create with their customers, but they have failed to make full advantage of it. This became evident while dealing with Ashok Leyland – India’s second largest manufacturer of commercial vehicles. Customers of Ashok Leyland’s trucks and buses have developed several variants and different customizations on these vehicles, but Ashok Leyland had not taken full advantage of it. This apparent failure to capitalize on such wonderful innovation opportunities led me to develop a framework for capitalizing on co-creation with customers.
Co-Creation and Customer Relationship Management
Customer centric innovation is not possible without having a robust customer relationship management strategy. Companies must first have a robust customer relationship management policy and strategy to identify the levels of customer relationships. In my earlier article on Customer Relationship Management & Sales, I had listed out how companies can classify customers based on the levels of customer relationships & customer needs. Relationships with customers can be classified into six levels:
Level-1: Utility Need
Level-2: Convenience Need
Level-3: Comfort Need
Level-4: Personal Recognition Need
Level-5: Self-expression Need
Level-6: Co-Creation Need
When a company has customers at the highest level of customer relationship – where the company is actively co-creating value or innovation with the customer, then the company should know what types of co-creation should be leveraged for greater benefit what types of co-creation should be kept out.In this article, I will concentrate on identifying types of co-creation. This will help managers identify co-creation opportunities that can be leveraged into real innovation.
Types of Co-Creation
Explicit Co-creation can further be classified into eight types based on the level of involvement of the manufacture & the customer.
Type-1: Mass customization
Type-2: Product Finishing
Type-3: Product Adaptation
Type-4: Customized experience
Type-5: Real time customization
Type-6: Open Community Product design & development
Type-7: New Service Design
Type-8: New product design & development
Type-1: Mass Customization
Co-Creation can exist in various forms. Starting with mass customization where every product is customized for each customer & the products are sold in huge numbers. Mass customization usually will not have a delivery impact, though there may be a price impact. Also the range of customization possibilities is limited by the manufacturer.
For example: Dell Inc., can customize every single computer it sells. Dell’s manufacturing and customer friendly web portal encourage customers to customize their computers. Today, mass garment retailers such as Levi’s can customize every single pair of jeans sold to each customer. See: Web Retailing Gets Really Personal
In mass customization, the customer involvement is not much apart from giving a set of simple details. The manufacturer has streamlined the manufacturing process to such an extent that it requires no managerial involvement to deliver the customized product. There is absolutely no engineering/pricing analysis needed to deliver the customized product. The customization is a “push-button” process.
Type-2: Product Finishing
In this type of co-creation, the customer is involved only in the product finishing details. The customer does not have much say in other details – such as engineering, materials manufacturing process etc. The level of details that the customer can specify is limited to the product finishing – but it has price & delivery impact.
Many manufacturers allow customers to specify the final finishing details. The customer is free to choose from wide range of possibility and based on the customer specification, the delivery time and the final price is worked out. For example customers can specify the color, trim and accessories in the car – but the customer has a wide range to choose from. For example Morgan Cars allows its customers to choose the colors, trim and all accessories – the range of choice available to the customer is huge – and it takes time/effort & money to deliver the customized product. Another good example will be Stretch Limousine builders. Each limousine is custom made and customer gives the specifications all the finishing details.
Type-3: Product Adaptation
Product Adaptation refers to cases where the manufacturer is actively involved in adapting the final product to meet the customer requirements. The manufacturer or a third party service provider will ensure that the product will perform the tasks stated by the customer. Customer takes the responsibility of providing detailed requirements of the end functionality and is also deeply involved in the adaptation. The product adaptation requires complex engineering and has significant cost & time implications.
Typical example of this will be ERP implementation. SAP provides the basic software, but each customer can adapt the software to meet their specific needs. SAP adaptation involves several engineers working for several months – all this has a major impact on time taken and the total cost of using the product. Similarly, there are several software that needs extensive user adaptation: Oracle’s Peoplesoft, HP OpenView, IBM Tivoli, EMC2 Documentem etc.
In the industrial world, all heavy engineering equipment such as TERRATAC’s tunnel boring machine, Ransomes & Rapier’s dragline excavator, Westinghouse’s nuclear reactors, BHEL Generators etc. All heavy engineering equipments are often manufactured as per customer’s specifications and the company takes the responsibility for its installation to its initial operation.
Type-4: Customized experience
Here the firm and the customer work together to create a customized experience for the customer. This is often seen in service industry and in retail sector.
For example, consulting companies such as McKinsey, BCG or KPMG etc., work with the customer to provide a unique solution. The customer’s involvement will be very high and on par with that of the firm. Even in retail sector – high end boutiques such as Luis Vuitton, Valentino, etc., provide a unique shopping experience to each individual customer.
GE’s Aviation business is one of the best examples of creating customized experience for customers – thus co-creating value with customers. GE commercial aviation services leases planes, jet engines and other aviation equipment to customers. GE treats each individual customer separately and structures the lease agreements that best fits the needs of the customer – thus creating a unique customer experience.
In the recent times, manufacturers are building various service extensions to their products – with the aim to provide better customer experience. Pharmaceutical firms and Genetic engineering firms are working on developing medication which is unique for each customer, and then deliver it though health care providers to create a unique customer experience.
Type-5: Real time customization
With the modern ERP & IT systems it is possible for manufacturers/service providers to have flexible operations. This enables the firm to offer real time customization: Customers can log into the systems and change the order specifications. For example, Amazon allows customers to change the order or the order delivery dates/schedule even after the order has been processed. FedEx allows its customers to change the delivery time for major customers. Weyerhaeuser allows its regular customers to change the order at a short notice period.
Type-6: Open Community product design & development
Linux is the poster child for open community development. Following the success of Linux, companies are now adapting different techniques for open community based product development. SUN opened up its Solaris OS software; its OpenOffice suite and a whole range of applications are now made open for general public to use, modify and develop. The company benefit by consolidating all the community development and thus improving the product.
A different variation of this approach is to create a user group. The user group may be sponsored by the firm or sponsored by the individual users. Today, few companies have successfully exploited this as a venue to interact with customers, take feedback from customers to improve & develop the product. For example, SNUG – Synopsys User Group, Harley Owners Group, Land Rover Clubs, Cadence Designer Network.
Type-7: New Service Design
Oftentimes customers often need different service than the ones being provided. In such cases many customers approach the seller with such service ideas. If the company may choose to implement these new services – then the customer is willing to help design the service offering. This kind of new service development is often seen in the financial world where investment banks develop new service lines based on customer involvement in service design.
IT services companies or pure play service companies routinely scout their customers for inputs while developing new service lines. For example FedEx developed a system by which customers can log in and change the delivery times and the transit schedules on the fly – when the delivery is being processed. Similarly, Amazon offers its customers to modify their orders and delivery schedules thought its IT systems.
Manufacturing companies too are jumping into this bandwagon. Caterpillar Inc., launched a new service line to help the customers lower maintenance costs and also be more environment friendly by remanufacturing old & worn out parts. See: Caterpillar Remanufacturing Services .
GE home appliance division has implemented an advanced ERP system which allows retailers to access GE’s warehouse and view it as though it is their inventory. The retailers can book orders against the inventory in GE’s warehouse – and GE will deliver it to the end customer. By tightly integrating the ERP system between the retailer and GE, GE is able to create a new service for its partners – who in turn can offer better range and prices to the end customer.
Peter Drucker once said “Customer does not want a 1” drill bit, he wants a 1” hole”. This statement makes us realize that customers are buying a product to satisfy their specific needs and that need can be fulfilled by a service. This theory is now being applied in the Software as a Service model – where customers are opting to buy the service instead of buying the software. Google Apps, Google Docs are good example of a service design built around the products.
Type-8: New product Design & development
In rare occasions, customers engage the supplier in developing new products. This is more common in business-to-business environment – where one business firm wants to develop a new product and that in turn forces all its suppliers to develop new products. For example to develop Tata Nano, Tata Motors has to involve several of its suppliers to innovate and create new products. Rane systems developed new steering wheel systems to meet the price & performance requirements of Nano. Bosch group had to develop an entirely new fuel injection system. Similarly, when Apple wanted to develop Apple Air – the ultra thin laptop, Apple approached Intel to develop a new range of microprocessors.
Co-creation is not without potential problems. The problems are more acute in case of new product design & development. Customers engage with vendors to develop new products mainly to serve their own needs. Therefore there will be a strong pull/resistance to ideas from the vendor if vendor tries to develop a generic product out of the joint efforts. Large customers can put exclusivity clauses over the usage of the new product – especially if the customer has enormous power. For example, Apple Inc, used Infineon 3G chip – but forced the vendor to mask it – void of any marks, and even forbade the vendor from reveling it even to investors & share holders.
The biggest hurdle in developing new products with the customer is the question of who owns the Intellectual Property Rights (IPR). Since the customer is also investing engineering/scientific resources and coming up with ideas, the customer will insist on having a joint IPR over the new products. If IPR is jointly owned, then the customer can demand & get exclusive use of the new product. The best way to get around this potential problem is the have IPR licensing agreements in place before starting on new product development.
Co-Creating new products or new service lines for a particular customer is risky. The vendor must be willing to take the risk. Customers are often willing to risk on the success of the program, but not bear the financial risks involved. Therefore, developing a new product or a service will require a higher level of financial scrutiny and managerial decision making. Senior management should get involved in managing the co-creation of new product development or new service development.
Levels of Customer relationships & Co-Creation
Co-Creation is all about customizing the offerings to meet customer needs. The extent to which a company is willing to customize/modify a product or a service is based on the quality of relationship it enjoys with the customer: Higher the level of relationship, greater the levels of co-creation. This implies that co-creation at the highest level – i.e. new product development or new service development is reserved only for select few customers.
The table below maps the types of co-creation with the levels of customer relationships. This mapping is not absolute – it is only indicative. The mapping between types of Co-creation and levels of customer relationships varies with industry and economic outlook.
Co-Creation and Customer Relationship Management
Customer centric innovation is not possible without having a robust customer relationship management strategy. Companies must first have a robust customer relationship management policy and strategy to identify the levels of customer relationships. In my earlier article on Customer Relationship Management & Sales, I had listed out how companies can classify customers based on the levels of customer relationships & customer needs. Relationships with customers can be classified into six levels:
Level-1: Utility Need
Level-2: Convenience Need
Level-3: Comfort Need
Level-4: Personal Recognition Need
Level-5: Self-expression Need
Level-6: Co-Creation Need
When a company has customers at the highest level of customer relationship – where the company is actively co-creating value or innovation with the customer, then the company should know what types of co-creation should be leveraged for greater benefit what types of co-creation should be kept out.In this article, I will concentrate on identifying types of co-creation. This will help managers identify co-creation opportunities that can be leveraged into real innovation.
Types of Co-Creation
Co-Creation exists in two forms:
- Explicit Co-Creation
- Implicit Co-Creation
Explicit Co-Creation occurs when customer openly seeks manufacturer’s help to modify existing product or create something new. This can range from something as trivial as changing the color of the product to very complex engineering – such as building a nuclear power plant.
Implicit Co-Creation occurs when the customer buys the product and modifies it to suit his needs. The customer may or may not disclose such modifications with the manufacturer.
Also at times customers are forced not to disclose modification. It is because managers tend to think that customers should use the product as it was intended by the manufacturer, but customers may have unique needs thus forcing them to use the product beyond the normal use cases – and that would violate the user terms.
In this article, I will concentrate only on explicit co-creation.
Explicit Co-creation can further be classified into eight types based on the level of involvement of the manufacture & the customer.
Type-1: Mass customization
Type-2: Product Finishing
Type-3: Product Adaptation
Type-4: Customized experience
Type-5: Real time customization
Type-6: Open Community Product design & development
Type-7: New Service Design
Type-8: New product design & development
Type-1: Mass Customization
Co-Creation can exist in various forms. Starting with mass customization where every product is customized for each customer & the products are sold in huge numbers. Mass customization usually will not have a delivery impact, though there may be a price impact. Also the range of customization possibilities is limited by the manufacturer.
For example: Dell Inc., can customize every single computer it sells. Dell’s manufacturing and customer friendly web portal encourage customers to customize their computers. Today, mass garment retailers such as Levi’s can customize every single pair of jeans sold to each customer. See: Web Retailing Gets Really Personal
In mass customization, the customer involvement is not much apart from giving a set of simple details. The manufacturer has streamlined the manufacturing process to such an extent that it requires no managerial involvement to deliver the customized product. There is absolutely no engineering/pricing analysis needed to deliver the customized product. The customization is a “push-button” process.
Type-2: Product Finishing
In this type of co-creation, the customer is involved only in the product finishing details. The customer does not have much say in other details – such as engineering, materials manufacturing process etc. The level of details that the customer can specify is limited to the product finishing – but it has price & delivery impact.
Many manufacturers allow customers to specify the final finishing details. The customer is free to choose from wide range of possibility and based on the customer specification, the delivery time and the final price is worked out. For example customers can specify the color, trim and accessories in the car – but the customer has a wide range to choose from. For example Morgan Cars allows its customers to choose the colors, trim and all accessories – the range of choice available to the customer is huge – and it takes time/effort & money to deliver the customized product. Another good example will be Stretch Limousine builders. Each limousine is custom made and customer gives the specifications all the finishing details.
Type-3: Product Adaptation
Product Adaptation refers to cases where the manufacturer is actively involved in adapting the final product to meet the customer requirements. The manufacturer or a third party service provider will ensure that the product will perform the tasks stated by the customer. Customer takes the responsibility of providing detailed requirements of the end functionality and is also deeply involved in the adaptation. The product adaptation requires complex engineering and has significant cost & time implications.
Typical example of this will be ERP implementation. SAP provides the basic software, but each customer can adapt the software to meet their specific needs. SAP adaptation involves several engineers working for several months – all this has a major impact on time taken and the total cost of using the product. Similarly, there are several software that needs extensive user adaptation: Oracle’s Peoplesoft, HP OpenView, IBM Tivoli, EMC2 Documentem etc.
In the industrial world, all heavy engineering equipment such as TERRATAC’s tunnel boring machine, Ransomes & Rapier’s dragline excavator, Westinghouse’s nuclear reactors, BHEL Generators etc. All heavy engineering equipments are often manufactured as per customer’s specifications and the company takes the responsibility for its installation to its initial operation.
Type-4: Customized experience
Here the firm and the customer work together to create a customized experience for the customer. This is often seen in service industry and in retail sector.
For example, consulting companies such as McKinsey, BCG or KPMG etc., work with the customer to provide a unique solution. The customer’s involvement will be very high and on par with that of the firm. Even in retail sector – high end boutiques such as Luis Vuitton, Valentino, etc., provide a unique shopping experience to each individual customer.
GE’s Aviation business is one of the best examples of creating customized experience for customers – thus co-creating value with customers. GE commercial aviation services leases planes, jet engines and other aviation equipment to customers. GE treats each individual customer separately and structures the lease agreements that best fits the needs of the customer – thus creating a unique customer experience.
In the recent times, manufacturers are building various service extensions to their products – with the aim to provide better customer experience. Pharmaceutical firms and Genetic engineering firms are working on developing medication which is unique for each customer, and then deliver it though health care providers to create a unique customer experience.
Type-5: Real time customization
With the modern ERP & IT systems it is possible for manufacturers/service providers to have flexible operations. This enables the firm to offer real time customization: Customers can log into the systems and change the order specifications. For example, Amazon allows customers to change the order or the order delivery dates/schedule even after the order has been processed. FedEx allows its customers to change the delivery time for major customers. Weyerhaeuser allows its regular customers to change the order at a short notice period.
Type-6: Open Community product design & development
Linux is the poster child for open community development. Following the success of Linux, companies are now adapting different techniques for open community based product development. SUN opened up its Solaris OS software; its OpenOffice suite and a whole range of applications are now made open for general public to use, modify and develop. The company benefit by consolidating all the community development and thus improving the product.
A different variation of this approach is to create a user group. The user group may be sponsored by the firm or sponsored by the individual users. Today, few companies have successfully exploited this as a venue to interact with customers, take feedback from customers to improve & develop the product. For example, SNUG – Synopsys User Group, Harley Owners Group, Land Rover Clubs, Cadence Designer Network.
Type-7: New Service Design
Oftentimes customers often need different service than the ones being provided. In such cases many customers approach the seller with such service ideas. If the company may choose to implement these new services – then the customer is willing to help design the service offering. This kind of new service development is often seen in the financial world where investment banks develop new service lines based on customer involvement in service design.
IT services companies or pure play service companies routinely scout their customers for inputs while developing new service lines. For example FedEx developed a system by which customers can log in and change the delivery times and the transit schedules on the fly – when the delivery is being processed. Similarly, Amazon offers its customers to modify their orders and delivery schedules thought its IT systems.
Manufacturing companies too are jumping into this bandwagon. Caterpillar Inc., launched a new service line to help the customers lower maintenance costs and also be more environment friendly by remanufacturing old & worn out parts. See: Caterpillar Remanufacturing Services .
GE home appliance division has implemented an advanced ERP system which allows retailers to access GE’s warehouse and view it as though it is their inventory. The retailers can book orders against the inventory in GE’s warehouse – and GE will deliver it to the end customer. By tightly integrating the ERP system between the retailer and GE, GE is able to create a new service for its partners – who in turn can offer better range and prices to the end customer.
Peter Drucker once said “Customer does not want a 1” drill bit, he wants a 1” hole”. This statement makes us realize that customers are buying a product to satisfy their specific needs and that need can be fulfilled by a service. This theory is now being applied in the Software as a Service model – where customers are opting to buy the service instead of buying the software. Google Apps, Google Docs are good example of a service design built around the products.
Type-8: New product Design & development
In rare occasions, customers engage the supplier in developing new products. This is more common in business-to-business environment – where one business firm wants to develop a new product and that in turn forces all its suppliers to develop new products. For example to develop Tata Nano, Tata Motors has to involve several of its suppliers to innovate and create new products. Rane systems developed new steering wheel systems to meet the price & performance requirements of Nano. Bosch group had to develop an entirely new fuel injection system. Similarly, when Apple wanted to develop Apple Air – the ultra thin laptop, Apple approached Intel to develop a new range of microprocessors.
Co-creation is not without potential problems. The problems are more acute in case of new product design & development. Customers engage with vendors to develop new products mainly to serve their own needs. Therefore there will be a strong pull/resistance to ideas from the vendor if vendor tries to develop a generic product out of the joint efforts. Large customers can put exclusivity clauses over the usage of the new product – especially if the customer has enormous power. For example, Apple Inc, used Infineon 3G chip – but forced the vendor to mask it – void of any marks, and even forbade the vendor from reveling it even to investors & share holders.
The biggest hurdle in developing new products with the customer is the question of who owns the Intellectual Property Rights (IPR). Since the customer is also investing engineering/scientific resources and coming up with ideas, the customer will insist on having a joint IPR over the new products. If IPR is jointly owned, then the customer can demand & get exclusive use of the new product. The best way to get around this potential problem is the have IPR licensing agreements in place before starting on new product development.
Co-Creating new products or new service lines for a particular customer is risky. The vendor must be willing to take the risk. Customers are often willing to risk on the success of the program, but not bear the financial risks involved. Therefore, developing a new product or a service will require a higher level of financial scrutiny and managerial decision making. Senior management should get involved in managing the co-creation of new product development or new service development.
Levels of Customer relationships & Co-Creation
Co-Creation is all about customizing the offerings to meet customer needs. The extent to which a company is willing to customize/modify a product or a service is based on the quality of relationship it enjoys with the customer: Higher the level of relationship, greater the levels of co-creation. This implies that co-creation at the highest level – i.e. new product development or new service development is reserved only for select few customers.
The table below maps the types of co-creation with the levels of customer relationships. This mapping is not absolute – it is only indicative. The mapping between types of Co-creation and levels of customer relationships varies with industry and economic outlook.
Closing thoughts
Today Co-Creation is fast becoming the best strategy for innovation. This makes it necessary to understand the various types of co-creation and levels of customer engagement – so that one can make better decisions. In this article, I have outlined eight types of co-creation and mapped it to levels of customer relationships.
Managers today are busy delivering to customers and in the process there is a good possibility of missing out on good co-creation opportunities or losing the knowledge gained during the customer engagement. By mapping the customer relationships and classifying the nature of work being done, managers can ensure that the firm does not lose out on co-creation opportunities and also capitalize on co-creation activity.
Friday, August 15, 2008
Ideas to Concept – Small Ideas are better
Every time we conduct an idea generation workshop or a simple brainstorming workshop, people often like to come up with big dramatic ideas. For example, when I conducted a brainstorming session for a leading auto maker, people came up with big ideas – a new range of automobiles, Maglev trucks, a drastically different engine technology etc.
People like big breakthrough ideas. In fact, the bigger and sexier the ideas, the more people are drawn to them. During the idea generation sessions, even managers think about big ideas – its like everyone wants to hit a home run – a dramatic breakthrough that will alter the face of the industry.
In reality such big ideas rarely gets to the implementation stage. Most of the big dramatic ideas die quickly – and will not get past the first gate. The reality of innovation stories is that most innovations are all small ideas. There are few BIG ones – but they are as rare as a 10 carat color-A diamonds. (Which only governments can afford)
As innovation consultant, my advice is to go after small ideas. Small ideas are where the real action is.
Why do I recommend small ideas?
There are several reasons, but I will stick with just two:
1. Small ideas help build sustainable competitive advantage
2. Small ideas build performance excellence.
In the global economy, managers are hard pressed to give higher returns to investors. This implies that ideas with lower risks and maximum gains are the ones that should be implemented.
Sustaining a competitive advantage
Internet economy means that ideas implemented today will be copied by the competitor tomorrow. This means that BIG ideas of today will attract competition in droves and quickly erode the competitive advantage.
For example, Tata Motors designed & built TATA ACE – a breakthrough in mini-trucks for developing economies. But within one year of its introduction, three competitors have developed similar products: APE-Piaggio, Force Motors, and Mahindra & Mahindra. If Tata Motors were to rely solely on design innovation as a competitive advantage factor, that edge will be gone in a flash. (Imitation is also a form of Innovation, but the imitator has an advantage of avoiding costly mistakes)
People like big breakthrough ideas. In fact, the bigger and sexier the ideas, the more people are drawn to them. During the idea generation sessions, even managers think about big ideas – its like everyone wants to hit a home run – a dramatic breakthrough that will alter the face of the industry.
In reality such big ideas rarely gets to the implementation stage. Most of the big dramatic ideas die quickly – and will not get past the first gate. The reality of innovation stories is that most innovations are all small ideas. There are few BIG ones – but they are as rare as a 10 carat color-A diamonds. (Which only governments can afford)
As innovation consultant, my advice is to go after small ideas. Small ideas are where the real action is.
Why do I recommend small ideas?
There are several reasons, but I will stick with just two:
1. Small ideas help build sustainable competitive advantage
2. Small ideas build performance excellence.
In the global economy, managers are hard pressed to give higher returns to investors. This implies that ideas with lower risks and maximum gains are the ones that should be implemented.
Sustaining a competitive advantage
Internet economy means that ideas implemented today will be copied by the competitor tomorrow. This means that BIG ideas of today will attract competition in droves and quickly erode the competitive advantage.
For example, Tata Motors designed & built TATA ACE – a breakthrough in mini-trucks for developing economies. But within one year of its introduction, three competitors have developed similar products: APE-Piaggio, Force Motors, and Mahindra & Mahindra. If Tata Motors were to rely solely on design innovation as a competitive advantage factor, that edge will be gone in a flash. (Imitation is also a form of Innovation, but the imitator has an advantage of avoiding costly mistakes)
Take the case of Motorola’s Irridium project: Motorola’s grand idea of anywhere communication system based on 66 satellites was supposed to provide instant wireless communication all over the world. It was one of the GRAND ideas. But implementing such a grand idea had so many challenges and in the end Motorola made so many design compromises - which made the final product unusable for most of the potential users. The handset was too big & bulky; the handset needed to have a line-of-sight communication with the orbiting satellite – which meant that these handsets cannot be used indoors, and lastly the cost of making a call was so prohibitive that it appealed to a select few.
The competition – in form of various telecom operators nibbled away the advantage of Iridium with lots of small ideas: digital cell phone communications, use of Dense wave multiplexing in Fiber Optics, CDMA, GSM etc – and in the end the operators could provide the same level of service as Iridium originally intended – at a fraction of the cost of Iridium.
In my study of sustaining competitive advantage shows that companies that implement a steady stream of small innovations enjoy significant competitive advantage over their competitors.
Take the case of Nokia for example, Nokia introduces at least 24-28 new handsets every year and with each handset Nokia introduces small innovations – which are usually based on the earlier innovations. All this together has helped Nokia build a significant competitive advantage over other handset makers.
If you are still not convinced about the futility of BIG ideas, see how many handset makers have competitive products to Apple’s iPhone.
My observation & my advice – BIG ideas sounds sexy, but implementing BIG ideas involves BIG headaches. Also success of a BIG idea will attract attention from competition and will soon flood the market with “me-too” products. Small ideas, on the other hand, are less likely to attract a direct competitive response. Also competition cannot really copy these small ideas as they are usually built on other small ideas. For example, Nokia introduced a series of business phones: E50, E51, E60, E61, E65, E70, E90, E91 etc. But the competitive response from Sony Erricsson or Samsung or Motorola has been negligible. Sony Erricsson has only one comparable model P1. Motorola has one: Motorola Q Even Blackberry has failed to meet Nokia headlong when Nokia is competing for Blackberry’s enterprise customers. Instead all the cell phone makers are working towards meeting the competitive threat of Apple’s iPhone.
My observation is that small ideas are less likely to attract attention from competitors, and often competitors will fail to respond to such small innovations till it becomes too late.
My advice is:
A large number of small innovative ideas implemented in measured steps through a detailed product development plan is the surest way to build a long sustaining competitive advantage.
Build Performance Advantage
In a recent innovation idea generation session, I used Lotus Blossom tool to help participants generate ideas. For this session, I had specifically asked the participants to generate ideas on “how to improve the product’s performance”. In the session 80+ ideas were generated and ~45 ideas were taken up for implementation immediately. The ideas taken for implementation were simple ideas that could be implemented immediately with little investment. The ideas generated in this session were specific to the company’s product and could not be copied by any competitor.
Employees always have ideas to improve the product or improve performance. By implementing large number of small ideas – one can drastically improve the performance or reduce the costs or both. Such ideas help in improving the market share and improve the bottom line.
A good example of this strategy is Bajaj Auto. Bajaj auto has implemented several ideas to improve the performance of its motorcycles – both in terms of fuel efficiency, handling performance and manufacturing costs. As a result, Bajaj Auto now enjoys a higher margin than its arch rival Honda motors.Another good example is Toyota. When Toyota entered US markets in 1970’s, American car manufacturers laughed it away. But Toyota persisted with small improvements in quality, fuel efficiency and reliability. By 2008, Toyota has become world’s largest car manufacturer. Today Toyota Prius has a fuel efficiency of 43 miles/gallon, while GM, Ford or Chrysler does not have one product that matches Toyota Prius in fuel efficiency.
Build Operational Advantage
Small ideas are often tough to imitate and almost impossible to copy – if the ideas are related to operations. Every company has its own unique operations, and operational improvements will result in increased efficiency which others cannot copy or imitate.
For example, Toyota’s new flexible manufacturing system allows it to build multiple types of vehicles with the same factory. This flexibility allows Toyota to rapidly change the product mix to suit the market conditions and increase profitability. Given Today’s high Oil prices, the demand in the US for Prius has gone up significantly while the demand for SUV’s & pickup trucks has fallen. To adapt, Toyota’s flexible manufacturing systems allows it to make more Prius cars instead of SUVs – thus gain market share even in a recessionary market. See: Autoblog
Also see: Toyota Adopts New Flexible Assembly System
Mahindra & Mahindra – an Indian auto major & world’s third largest maker of tractors has built an excellent reputation around operational advantage. Mahindra & Mahindra encourages innovations at the shop floor – which translates to incremental product development and improving manufacturing operations. For example, developing a chassis made of tubular steel rather than the traditional pressed steel for its SUV saved $17million/year in manufacturing costs for Mahindra & Mahindra. (See Harvard Business Review July-August 2008)
Small ideas – small innovations which lead to better operations are always tough to copy and thus it secures a strong competitive advantage in the long run. Japanese call it “kaizen” and have demonstrated to the world what such small improvements can do.
Closing Thoughts
Every company wants to out-innovate its competition. In this race, it is easy to get tempted to go after big innovations and managers tend to ignore small innovative ideas. But the business reality is different. Each small idea may not rake in big profits, but they build strong competitive advantages. When lots of small ideas are implemented, one can really build BIG competitive advantage and also BIG profits. Toyota, Nokia, Mahindra & Mahindra have shown how small ideas help. In my opinion, small ideas are like infantry while big ideas are like fighter jets. While the fighter jets make the big noise, it is the infantry that can really win the war.
Tuesday, August 05, 2008
Encouraging Young Innovators
Today I read a news item on Google News that a group of engineers at RV College of Engineering in Bangalore have developed a car with ultra high fuel efficiency of 180 Km/liter of petrol or ~410 Miles/Gallon!
I guess that this would be some sort of a record. I congratulate this team of young innovators.
See: RVCE launches Garuda supermileage car
Wait! Don’t get all too excited to buy this car. This is just a prototype – technically it’s a car, but it is not really a people transport worthy yet. But that issue is not what I am concerned about. Instead I am very happy to see how many local companies jumped in to help these engineering students develop such a prototype: Tantra Infosolutions, CA Adapco, Chameleon Motors, Innoversant Solutions and Bimal Auto Agency.
What amazed me is that all these companies are local to Bangalore & have nothing to gain from the success of the project (except for PR & brief publicity).
The raise of Indian engineering and Innovation can be seen with this small success. For a long time, Indian educational institutes and industry complained about lack of Industry-education cooperation. But this is now changing – albeit slowly but surely changing for good.
Indian industries & business should join hands with colleges and universities to build innovation in India that meets the needs of its people. Garuda experiment shows how one can succeed with cooperation. Most importantly, Garuda project shows how one can encourage young innovators who are studying in universities.
I guess that this would be some sort of a record. I congratulate this team of young innovators.
See: RVCE launches Garuda supermileage car
Wait! Don’t get all too excited to buy this car. This is just a prototype – technically it’s a car, but it is not really a people transport worthy yet. But that issue is not what I am concerned about. Instead I am very happy to see how many local companies jumped in to help these engineering students develop such a prototype: Tantra Infosolutions, CA Adapco, Chameleon Motors, Innoversant Solutions and Bimal Auto Agency.
What amazed me is that all these companies are local to Bangalore & have nothing to gain from the success of the project (except for PR & brief publicity).
The raise of Indian engineering and Innovation can be seen with this small success. For a long time, Indian educational institutes and industry complained about lack of Industry-education cooperation. But this is now changing – albeit slowly but surely changing for good.
Indian industries & business should join hands with colleges and universities to build innovation in India that meets the needs of its people. Garuda experiment shows how one can succeed with cooperation. Most importantly, Garuda project shows how one can encourage young innovators who are studying in universities.
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