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The only source of sustained competitive advantage, Peter Drucker once said (and is quoted in Innovation Management), is… the ability to learn faster than your competitors.

Do business schools and management educators learn at all – fast or slow?

Consider this. Michael Porter’s phenomenal 1980 book Competitive Strategy invented a new management discipline, known as competitive strategy. In its wake, companies built strategy encyclopedias. Business schools taught strategy core courses. I believe both initiatives were a failure for at least a decade.

But why? Because companies quickly learned the problem was not conceiving a strategy – but implementing it. The problem was not the noun, but the verb – action, implementation. Harvard Business School Professor Bob Kaplan has helped fill this gap – his Balanced Scorecard and Strategy Map tools help companies with crucial implementation. “What companies need is not a VP for strategy,” Kaplan says, “but a VP for Strategy Implementation.”

Now, consider innovation. There are hundreds of books on the subject. And many business schools have core courses on innovation. But history repeats itself. The problem is not innovation – dreaming up new products and services. The problem is implementing the innovations, managing them, organizing them, and wrapping clever creative business models around ideas to achieve marketplace success. In other words: Innovation management.

When we approached publishers in the U.S. with our manuscript, the response was: how many core courses are there in Innovation Management? Well, we said, very few, partly because there are so few well-organized textbooks. Uh-huh, they said. Come back in 10 years. Sage (India), in contrast, understood the need at once.

A few days ago, a colleague drew to my attention a new initiative in Innovation Management – not at Stanford, Harvard or Wharton, but at North Carolina State University, where a Center for Innovation Management has been established, along with a School of Innovation Management, featuring unique new executive programs. As is often the case with innovation, the breakthroughs come not from existing market leaders but from upstarts quick to learn and seeking to gain competitive advantage.

So – is innovation a noun? Or a verb? In grammar, it is a noun. But in business, it is a verb – an action plan for implementing great ideas. In the term “innovation management”, it is the noun, not the adjective, that is the key success factor – provided the noun is treated as if it is a verb. That is the message we seek to convey in our book Innovation Management.

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One thing leads to another… in strange and exotic ways.

For instance – Dutch researcher Marco Mostert, of Utrecht University, told  the International Medieval Congress in Leeds, England, on July 11, that the following teleology occurred:

• After 1200, in England and on the Continent, people began moving into towns.
• The migrants quickly learned that townspeople frowned on their wearing nothing under their smocks and gowns; as peasants became tradesmen, and dealt with the opposite sex, it became de rigeur to wear underwear.
• As underwear became popular, so did the supply of rags.
• This in turn increased the production of rag-based paper, and lowered its price; previously parchment (the skin of sheep) was used instead.
• This in turn led to William Caxton’s first printing press, in 1476, whose business model was built on cheap paper.  
• Caxton’s invention of printing, in turn, led to the writing and printing and sale of books. Books, in turn, led to innovation – the creation of new ideas, new findings, new thinking. 

The next time you watch an ad for underwear on TV, instead of scantily-clad models, see instead the march of progress and innovation. And the next time you discard your old underwear, think about how in the past they might have become War and Peace or Leaves of Grass. 

Source: Martin Wainwright, The London Guardian, “how discarded pants helped to boost literacy”, July 12, 2007.

The most powerful innovations occur in the way managers and entrepreneurs think about how they do business. Strategy guru Gary Hamel has argued this powerfully for years. 

Take for instance, Bill Gates. Microsoft has been trying to make money in China for 15 years. They began by sending sales managers to China from Taiwan. According to an article in the recent European edition of Fortune, “How Microsoft Conquered China”, Microsoft already had a near-100% market share for Windows. Only the copies were pirated. Microsoft made no revenue.  

Solution? Fight bitterly to protect intellectual property. Hire lawyers. Litigate. Prosecute. Right?

Wrong. Microsoft had five China country managers in five years, and none made any headway at all. When Microsoft executives in China tried to explain why this policy was futile and wrongheaded, the geniuses in Redmond, WA. Would not listen. And Chinese officials began to use Linux.

Then led by Craig Mundie, Microsoft executive who now leads the China strategy, a new approach – an ‘innovation in thinking’ occurred. Microsoft began to work with China’s leaders and governments to help build a Chinese software industry – a top priority for them. Microsoft offered China the right to look at parts of Window’s source code. A Microsoft R&D facility was set up in Beijing. And Bill Gates himself said in 2001 that while it was terrible China pirated software, if they were going to pirate anybody’s, he’d prefer it was Windows. 

Today Windows is used on 90% of China’s PC’s. When China’s leaders visit America, they stop first at Bill Gates’ home – then go on to see another Bill (Clinton) or George (Bush). Microsoft’s China revenues total no more than $7 per PC ($100 or $200 in rich countries), but – the old notion that if you sell a toothbrush to each of  a billion Chinese, you’re a billionaire is working out well. You succeed on volume. 

The old cliché says, Think global, act local. No way. It should read: Be global, but think local, act local. ALWAYS think local. That is how Microsoft finally succeeded in China.

Stew Leonard’s Dairy, a supermarket in Seattle, WA., was founded in 1921, by Stew’s father. It began as a dairy. Today, a supermarket, it has weekly turnover of more than $1.5 m., or $80 m. yearly! (The average supermarket turns over $200,000 weekly, about a tenth!). How does Stew boost business by an order of magnitude? By ‘listening to the voice of the customer’ and innovating accordingly.

Most supermarkets have a bewildering array of 16,000 items. Stew has only 750. But his secret? “Nobody comes into this store saying, what can I do today for Stew Leonard! They say, what can Stew Leonard do for me?  And if I don’t…they won’t come back. And they’re right”. Stew is on the floor constantly, every day. His work is his passion. He works his customers like a politician, asking them what they like, what they don’t like, what should be changed. 

Take, for instance, a small example – strawberries. Nearly all supermarkets sell strawberries in small baskets. Stew breaks the rules – the first principle of innovation. His strawberries are loose, in a big pile, and customers choose their own.  They end up buying a lot more that way, Stew says, fillings bags full, but mostly – that’s what they want. And we did what they want. 

This simple principle of business has brought Stew to make 24 additions to the original dairy store. 

He has Disney-like figures, in cow costumes, romping on the floor, entertaining children and adults alike. Who says supermarkets can’t be fun? Stew asks. 

“We want to make every customer feel special,” he says. He assembles focus groups weekly, to listen to what they say.  Members of the panels give their time, because they are, like Stew, passionate about the store.   

Stew offers low prices, because he buys direct from growers and producers. He offers low prices because he limits the range of what he sells. And he offers clear simple displays, to make shopping easy and fast.  

Great innovators are always focused on their customers. You can find great innovation everywhere – even in a supermarket. 

* based on the video “In Pursuit of Excellence”

Suppose you are CEO of America’s largest company, heading the Fortune 500 list in five of the past six years, with $351 b. annual sales (2006), up 11% over 2005, and $11.3 b. in net income, up nearly 1% over 2005, along with some one million employees. 

Where in the world do you find growth, after driving many of America’s smaller shops out of business?

Here is an ultra-simple innovation strategy. If you find it hard to sell “same to more” (the same goods and services to more and more customers), how about trying “more to same” (sell more, and different, goods and services to the same customers). How about, for instance, selling financial services?

On March 16 Wal-Mart withdrew its plan to create its own bank. But on June 20, it announced it will offer a range of financial services to its customers, through Wal-Mart Money Centers, including check cashing, bill payments and international money transfers. (Many of Wal-Mart’s customers are foreign-born workers, who send money home to their families). Wal-Mart may take business away from Moneygram International, US Postal Service and Western Union. 

Wal-Mart has been struggling. It has gotten bad press over discriminating against women. Its same-store sales were down 3.5 % in April, the biggest fall since 1979. And its strategy to move upscale, according to Business Week, has failed. 

Apparently, Wal-Mart’s business-model innovation, directed to financial services, is cohort-based – hoping to attract the financial business of younger people, who at times pay high rates of interest to moneylenders and look to save money in banking, just as they do in buying their clothes and food at Wal-mart.

Wal-Mart has a large, though low-to-middle income, customer base. By expanding the scope of its offerings, it hopes to restore its once-strong growth. We will watch the results closely, as a case study in innovation in America’s –and indeed, the world’s – largest business. 

In Innovation Management, we describe the American retailing giant Wal-Mart’s business model in detail. (See, for instance, our discussion of Wal-Mart founder Sam Walton’s business values, pp. 129-30, and Wal-Mart’s competitive model, p. 266). 

Wal-Mart’s “everyday low prices” were built on leveraging economies of scale, low-price Chinese suppliers, advanced satellite-based IT systems for inventory and shelf management, and ‘float’ – paying suppliers in 90 days, while selling their goods within 7. The latter ‘float’ is a three-month interest-free loan, which on Wal-Mart’s annual  $351 b. annual sales (now second to Exxon-Mobil in revenues), is worth about $4 b.

But in 2006, Wal-Mart’s earnings per share barely rose, its market value at end June is roughly the same as a year ago, and its share price, under $50, is far below its 2000 peak of $68. “Is the world’s biggest retailer in trouble?” asks The Economist, in its Feb. 15th issue. 

The answer is, No! Having innovated on the supply side (cost and efficiency management) Wal-Mart is now innovating on the demand side – on the products it sells. On June 20, Wal-Mart announced that having abandoned plans to start its own bank, it will instead offer a series of financial services to its customers, through Wal-Mart Money Centers (check cashing, bill payments, int. money transfers). Also, Wal-Mart will issue a Wal-Mart MoneyCard, a prepaid Visa card, which will cost $8.95, for buying gas, and for shopping online. Financial services is a new growth area for Wal-Mart. Faced with a decline in same-store sales in April, and a failure of its effort to sell more upscale (higher-priced) items, Wal-Mart grappled with a traditional strategic dilemma: Sell more (goods and services) to same (customers), or – Sell same (goods and services) to more (customers). The choice: More to same. According to Business Week (June 20, 2007), the new younger generation,  Gen Y, is more open to handling its financial transactions with companies that are not real banks. “In a decade Gen Y might think that Wal-Mart is as much a bank as Bank of America,” notes Business Week.   

“More to same” strategies require strong innovation management skills. Observers will  watch Wal-Mart closely to see if its core competency in innovation is as high as its core competency in operations management. 

Blarney Castle, Ireland: What brings an Israeli – and millions of tourists – to this 15th C. castle? 

A strange and highly improbable story that is attached to it.

Over 400 years ago, Queen Elizabeth I (the “Virgin Queen”) lost patience with Lord Blarney, owner and occupant of the castle, because he sweet-talked her endlessly, without ever doing what she wanted.  

“He’s talking Blarney!” she said, exasperated. [See below].
—————————————————————————————————–
Baloney? Or Blarney?
Baloney: When you tell an unattractive women that she is beautiful.
Blarney: When you tell the same woman that her wisdom and experience enhance her striking features. 
—————————————————————————————————–

Some 200 years ago, a marketing genius invented a legend that if you kissed the Blarney Stone atop the castle, you instantly acquire the ‘gift of the gap’ – the ability to talk blarney. 

Now millions (including Winston Churchill) come here for that purpose. Clearly, it worked for him, right? 

What can we learn from the Blarney Stone? Mainly, the truly amazing power of a great story.  

At Blarney Catsle, we watched people laugh and chatter, imagining themselves as eloquent as Churchill after kissing the stone.  We saw how they suspended their disbelief and cynicism and surrendered to a compelling fairy tale. We realized too how this tiny nation of only 4 m. people survived famine, hardship and oppression, and kept alive their history, values and culture, in part by their story-telling skills. We understood why Ireland produced so many great writers, all of them wonderful story-tellers – Jonathan Swift (Gulliver’s Travels), J.M. Synge (Playboy of the Western World), Sean O’Casey (Juno and the Paycock), G.B. Shaw (Man and Superman), James Joyce (Ulysses), and W.B. Yeats (Innisfree). 

But mostly, we understood how Ireland has transformed itself from one of Europe’s poorest, perpetually poor, nations, into one of the richest, through an improbable story first told in 1988: “We will become the choice site in Europe for investment by the world’s leading global companies.” Remember: an improbable story that is believed by a critical mass of people becomes a self-fulfilling prophecy.

Finally, we asked: Israel too was born as a result of an improbable story – returning to our ancestral homeland after 2000 years. After all, wasn’t it Herzl who said, If you will it – it is no Blarney!

Stories, like business models, sometimes need renewal.   

So – what is Israel’s story today?     
____________________________________________________________________
Further reading: Kate Sweetman & Shlomo Maital. “The Power of Stories”,  Int. J. of Technology & Innovation Management Education, vol. 1 2006.  

ACTION LEARNING
Reader, ask yourself:
     •  What is my story? Do I have one? Does it inspire and energize me and those I love? 
     •  What is my organization’s story? Does it have one? Does it inspire and energize me and all those whom I lead? 

In 331 B.C. 23-year-old Alexander of Macedon advanced toward Persia. In the previous two years, he had conquered Egypt and the Mediterranean coast, then Syria, and now moved toward Persia to face the Persian emperor Darius. Alexander crossed the Tigris and Euphrates Rivers with his forces, while Darius mustered a large army. The two armies met and fought at Gaugamela, near the modern-day northern Iraqi city of Mosul. [The name Gaugamela comes from “gahmal”, or camel in Hebrew and Arabic, because supposedly the battle occurred near a camel-shaped hill.]

Alexander’s forces were vastly outnumbered. Some accounts say Darius’ army had a million soldiers. But the difficult logistics of feeding such an army suggest it was smaller, perhaps 100,000. However, Darius had 200 scythed chariots – chariots with fearful rotating knives on each side that could cut opposing soldiers and cavalry to pieces. Alexander had mustered a force less than half that of Darius, with no chariots.  

It appeared hopeless. But Alexander defeated Darius by several remarkable innovations. Here are just two of them:
 
•  The box or “mouse trap”: After Gaugamela, scythed chariots were never used again in battle. Alexander found a simple solution. He arranged his soldiers, carrying six-meter-long spears known as sarissa, into three-sided boxes, with spears facing inward. The Persian chariots rode into the mouse-trap box – and the horse pulling the chariot bolted and stopped when facing the spears ahead of it. It was then a simple matter for the Macedonians to annihilate the stationary chariot rider and his steed.
 
•  The tactics: Darius lined his forces up conventionally, with scythed chariots in front, then infantry, in a long row, with cavalry on the flanks. Darius was in the center. But Alexander placed  his cavalry at 45 degree angles on the flanks. He led the cavalry on the right, while his general Parmenion led the cavalry on the left. At the start of the battle Alexander led his cavalry in a slow trot parallel to the Persian lines – for the Persians, a puzzling move. Then, suddenly, Alexander turned  left toward the Persians, forming his troops into a kind of arrowhead and driving right toward the center of the Persian lines, toward Darius and his Royal Guards. The Persians had expected a conventional frontal battle, with front lines of each force engaging each other. They were perplexed and confused by Alexander’s innovation. Darius fled in panic – and the battle for him was lost.

 •  The leadership: While Darius fled, abandoning his troops to save himself, Alexander behaved differently. Seeing Darius fleeing, he began to pursue him. But Alexander got a message from Parmenion, on the left flank, saying that Parmenion’s cavalry was about to be annihilated by the Persians. Alexander had a tough choice: Capture and kill Darius and win the Persian Empire, or rescue his embattled general and troops. Surely, the driven, ambitious young Alexander would chose the Empire. But no – he chose his men. He broke off the fight, and returned to rescue Parmenion and save his cavalry.

There is rarely a strong innovation story, without some element of leadership. By showing that his soldiers meant more to him than the Persian Empire, Alexander won their loyalty forever – and earned the title Alexander the Great. Darius was soon murdered by a rival, who then declared fealty to Alexander.  

Alexander the Innovator, in 12 years, conquered most of the world known to the ancient Greeks. His empire reached as far as the Punjab in India. He never lost a battle. He died at age 33 of malaria, West Nile fever, encephalitis or heavy drinking, or a combination of them. 

“You and I, we will change the world,” go the words of a popular Hebrew song. But how many of us truly believe this is possible?

More than at any time in history, there is tremendous need for world-changing innovators. Why? Because globalization and the ideology of free markets have led to sharp shrinkage in public services and to an enormous increase in the gap between rich and poor. Unless addressed, this gap will be (and in some ways is already) threatening for world stability. Innovators can and must address desperate, pressing social problems: hunger, illness, poverty, stagnation, inequality.

A social innovation is an idea that addresses and solves a pressing social problem and meets a social need. Here is one example. Mohammed Yunus, a Bangla Deshi economist, won the 2006 Nobel Peace Prize for launching Grameen Bank, a bank that provides micro-finance loans to poor villagers. In 1974 Yunus went out to a village to find out why villagers were starving, and learned that lack of credit was keeping villagers in poverty. He lent them $27 – and got it all back, to his surprise. Those $27 changed the villagers’ lives. He went on to start a bank that made small loans to villagers in many countries, to replace usurious interest rates of 100% or more. As of 2006: 
 
•  Total number of borrowers is 6.67 million, and 97% of those are women   
•  2,247 branches (as of May, 2006) covering 72,096 villages, with a total staff of over 18,795   
•  Loan recovery rate is 98.85%  
•  Since inception, total loans distributed amount to US$ 5.72 billion. Out of this,  US$ 5.07 billion has been repaid.

Yunus, a social entrepreneur and innovator, changed the world. And he is not alone.

Rick Aubry is President of Rubicon Programs, an American organization founded in order to provide the homeless with housing, training and employment in one of its businesses. For instance, Rubicon Bakery distributes desserts to 2,000 supermarkets across the U.S. Rubicon has generated jobs for some 40,000 people, since 1973, funding half of its $16 m. annual budget from revenues generated by its businesses. Aubry says, “Social enterprise 2.0 must impact to a magnitude 100 times that of achievements to date”, because the needs are so great.

America’s Public Broadcasting System, and its series New Heroes, showcase social entrepreneurs. (See www.pbs.org/opb/thenewheroes/).  

“A social entrepreneur identifies and solves social problems on a large scale,” notes the PBS series. “Just as business entrepreneurs create and transform whole industries, social entrepreneurs act as the change agents for society, seizing opportunities others miss in order to improve systems, invent and disseminate new approaches and advance sustainable solutions that create social value. Unlike traditional business entrepreneurs, social entrepreneurs primarily seek to generate “social value” rather than profits. And unlike the majority of non-profit organizations, their work is targeted not only towards immediate, small-scale effects, but sweeping, long-term change.”

PBS reports that an Indian doctor, Dr. Venkataswamy, instead of retiring at 65, mortgaged his home and opened a hospital to perform free or low-cost cataract surgery on poor Indians. (A million or more villagers are blind due to cataracts, a condition easily curable by lens-replacement surgery – but not affordable to the villagers). In his first year, Dr. V. performed 5000 surgeries. Social entrepreneur David Green showed Dr. V. how to reduce the cost of a cataract lens from $150 (unreachable for Indian villagers). Their company, Aurolab, makes products used by eye care institutions and ophthalmologists in more than 120 countries. The factory produces hundreds of thousands of lenses each year — 10 percent of the world supply — at $5.00 a pair. The company turns a profit of thirty percent on its investment. With the revenue stream produced by Aurolab, Dr. V. has been able to open five new eye hospitals in southern India.

An outstanding example of social entrepreneurship is Nicholas Negroponte’s OLPC “one laptop per child” project. The project will mass-produce laptops, aiming at a $100 delivery price, within the means of millions of children in developing countries. (See www.laptop.org). Where they have been provided, such laptops have fundamentally changed the way children are educated. They have changed the world.
  
I expect we will see social entrepreneurs proliferate worldwide. Members of Generation Y, the generation following Generation X and the baby-boomers, seek to find meaning in their lives, more so than their parents and grandparents.  Many will do so by trying to do good for others, far more than trying to do well for themselves. In doing so, they will change our world for the better – and fill the huge gap now created by incompetent bureaucrats and shrinking public resources.   They will use the principals of innovation to become not Bill Gates – but Muhammad Yunus or Nick Negroponte or Rick Aubry or Dr. Venkataswamy.   

Shall we try to join them? 

     -David Bornstein. How to Change the World: Social Entrepreneurs and the Power of New Ideas.

My wife, a school psychologist and expert on early childhood, reads widely. I find that the research that crosses her desk is far more interesting than much of the management fluff that crosses mine. And often, far more relevant.

For instance, take the research monograph by Michelle Chouinard. She studied how and why children ask questions.  Among other things, she studied transcriptions of 24,741 asked by four children, tracked from age 1 1/2 through about 5, in 229 hours of conversations with their parents. The pace of the questions was machine-gun – for “Adam”, the top interrogator, 198 questions an hour (3 per minute!!). The average was about 2 per minute, or 108 per hr. 

We know that 90% of what we learn is learned by age 5. We also know that sustained competitiveness In organizations derives from the ability to learn. So – what can organizations, and innovative managers, learn from kids? And how, as mature leaders, can we return to the skills we had as five-year-olds?

Here are five findings, along with a self-test question and implications for innovation.

1.  “Children know when they’ve received those answers [they seek] and they continue to pursue them if they haven’t received them.” (p. 101)

Do you pursue your ‘why’ questions, to get to the bottom of things? Or do you stop before you really find the answer, out of politeness? (Do you use “why” predominantly, or mostly how, when and where?)  

If the answer is no: You’re not yet a five-year-old.

2. “When children encounter a ‘problem’, …questions are the tool  they use to get information; when they have [it] they can solve the issue at hand. (p. 105)

In tackling a problem, do you ask strings of questions, including ones that may seem to others ‘dumb’? Are you reluctant to reveal lack of knowledge by asking? 

If the answers are ‘no’ and ‘yes’,  you’re not yet a five-year-old.

3. “When the task gets harder, children switch strategies and find another dimension to ask about. Children are skilled at using whatever information they have at hand to efficiently generate a question and resolve a problem.” (p. 95).

Do you ask incisive creative questions that can point to solutions and innovations?
Mathematicians say 90% of solving a hard problem is formulating the question. 

If the answer is no, you are not yet a five-year-old. 

4. “Children recognize that the first question did not get the information they needed, and ask again.” (p. 88). “When adults do fail to answer, children persist in trying to get the information they requested.” (p. 43). “Children continue to ask questions until they get the information needed… and once they accomplish this they stop asking the question.” (p. 28).

Do you accept unsatisfactory answers – especially from superiors? Or do you insist on getting a straight answer, and persevere until you do?

If the answer is no – you are not yet a five-year-old.

5. “The number of questions is [not] the key; asking the right question is”. P. 89. (Children were given a box, asked to find out what was in it, and then turned loose to ask questions). 

Can you frame a penetrating question that ‘unlocks the door’ to the problem?

If you can, you’re a five-year-old. 

One of the 7 key principles employed by Leonardo da Vinci was “curiosita” – endless permanent curiosity about the world, and the drive to ask questions about how it works. Children have this. Adults tend to lose it. Innovators desperately need it. 

So – managers, return to your childhood. Your five-year-old will show you how. 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
March 2008
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