GCLS Quotes – Day 1

September 23, 2009

I am in NYC participating as a delegate in the Global Creative Leadership Summit led by the Louis Blouin Foundation. Attending are 100 fascinating people ranging from Prime Ministers to business leaders.

Over the course of 3 days there are a number of conversations on topics related to improving the world.

Here are some of the interesting tid bits I picked up over the first day. Everything here is a paraphrase rather than a direct quote. And please forgive any inaccuracies.

Louise Blouin

  • We had a value crisis, not a financial crisis. That is, there was a crisis and values
  • Cyber weapons and bio weapons are our biggest threat. Bio weapons could lead to a September 11 type catastrophe every month.
  • A problem of our neighbors is our problem
  • If you get big bonuses when things go well, you should give money back to the company when things go wrong. We need to increase the level of accountability

Michael Chertoff, Former Secretary of Homeland Security

  • Barriers to do damage have dropped
  • We need to establish accountabilities (e.g., Libya with the Lockerbie bombing or Somalia with piracy)
  • Bio terrorism and cyber terrorism are the greatest threats
  • Global response needs to be one step at a time to demonstrate positive outcomes. Tackling things that are too big don’t move us forward.

Luis Moreno-Ocampo – Chief Prosecutor, International Criminal Court

  • The challenge is how to improve global governance in places where there is no government.
  • Another challenge is that we need global agreements that take into consideration local needs

Pasqual Lamy – Director General, World Trade Organization

  • Investing in health care will help global trade in the long run. Because if jobs are lost due to trade, at least people have health coverage.
  • There is a clash between the international and domestic agenda (e.g., cotton subsidies)

Dr. Dominique Strauss-Kahn – Managing Director, International Monetary Fund

  • Peace and economic stability are intertwined. Peace is needed for growth. And growth is needed for peace.
  • Expects economic recovery in 1st half of 2010. Growth will resume. But the social crisis (e.g., lost jobs) will last longer.
  • 90 million people went back into poverty due to the economic crisis – mostly from Africa.
  • Economic instability could lead to wars. And wars lead to economic disaster. 1 year of civil war costs on average 2.5% of GDP
  • Avoiding war is the key to economic stability

Prime Minister of Netherlands Jan Peter Balkenende

  • Prosperity at any price and soft living contributed to our current situation
  • The crisis can be a catalyst for change if we change the culture. Self interests hurt the system.
  • We must end the “get rich quick” theory of life

Stanley Bergman, Chairman of the Board and CEO, Henry Schein

  • 13,000 employees participate are involved in an intrapreneurship culture.
  • Philanthropy is a big part of the company’s philosophy

John Copelyn, CEO, Hosken Consolidated Investments

  • To create innovation, you need a long term vision and a vision beyond your own wallet

Mark Angelson, Chairman, MidOcean Partners

  • This was not a depression. It was a deleveraging
  • We need to move to more preventative measures such as paying for wellness rather than sickness
  • The growth areas are: 1) Healthcare, 2) Clean Tech, 3) Rebuilding infrastructure

Ali Velshi, Chief Business Correspondent, CNN

  • He described the cause of the recession to a group of kids as follows… It was caused by consuming less than was made and spending more than was earned.

Lex Fenwick, CEO, Bloomberg Ventures

  • New employment will come from new businesses rather than existing businesses
  • Employees are afraid to bring new ideas.  This stifles innovation.
  • He added that “private education” is another growth opportunity area

Ted Turner, CNN Founder and philanthropist

  • I read the Economist (and it sounds like that is his primary source of news)
  • I drive a Prius
  • If I could run CNN and the Cartoon Network at same time, Congress can deal with health care and climate change at same time

Other distinguished guests included:

  • H.E. Shaukat Aziz, Former Prime Minister of Pakistan
  • President Michelle Bachelet of Chile

For other quotes, go to the GCLS Twitter feed

To learn more about the event, go to the Global Creative Leadership Summit website.

My session is Friday morning…

Innovation and Roller Coasters

May 1, 2009

Here’s a 1 minute video clip from a speech I gave a year ago in Denmark. It compares the movement of innovation efforts in companies to the movement of old, wooden roller coasters.

Innovating in Tough Times

April 29, 2009

I was recently interviewed via email for a Canadian publication.  I was asked 5 questions.  Given the journalists deadline, I needed to provide an immediate response.  Here are “off the top of my head” answers – without editing.

1. What is your own definition of an innovative business?

An innovative business is one that continually adapts and evolves to meet changing market conditions. It is not about new product, new processes, new ideas, or new services. It is about staying one step ahead of the competition.

2. Why is it so important for a business to invest in innovation during recession time?

Innovation can be used to reduce costs as well as grow a business. You can either slash your business, or be creative about how to do more with less.  But investing in growth during troubling times is important too. Given that everyone else is cutting back, for every dollar invested in innovation, you get a larger return than you would have in the past. Regardless, the economy will rebound. Innovation is more like a marathon than a sprint. If you are not prepared, when market conditions improve, you will be behind the curve.

3. Do you believe that each recession leads to a changing of paradigm in the way people buy and live, and if yes, what can we expect after this crisis?

During a crisis, buying habits certainly change. People focus more on eliminating their pains than they do on pleasure and growth. Therefore, if you solve someone’s pain, you will continue to thrive even in tough times.  We also see people looking for affordability and accessibility. After a crisis is over however, the market in general (although not necessarily individuals) return to their old ways. After the recession of 1970, consumers eventually returned to old habits. After a while, we forget the pain.

4. What are the worst innovation mistakes to avoid during recession time?

Stopping innovation altogether is a mistake. But investing in the “wrong” innovation is an even bigger mistake. Albert Einstein once said, “If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.” From my personal experience, most organizations spend 60 minutes finding solutions to problems that don’t matter. Doing this wastes your money and the energy of your people.

5. How can a business boost its creativity during a recession when money is in short supply?

Here are several ideas 1) Instead of developing new products, adapt existing products/services to make them more affordable/accessible, 2) Use Open Innovation to reduce costs while gaining valuable marketing insights, 3) Use process improvement techniques to reduce costs, 4) Find ways of solving your customer’s pains, 5) Use a “build it, try it, fix it” approach to innovation enabling you to fail cheaply.

Climate for Innovation On the Rise

April 9, 2009

According to a recent study by Chuck Frey at innovationtools.com, 47% of companies say that the climate for innovation has “improved slightly or significantly” since the onset of the global recession.  In fact, only a quarter of the respondents felt that the climate for innovation has deteriorated.

Surprisingly, only one third of the companies say they cut investments in innovation.  37% have kept funding steady while 29% have increased funding.

However, as I suspected, those innovation investments are now being channeled into things other than new product development.  The top 5 innovation strategies are:

  • Looking for creative ways to improve or extend your existing products (50.9%)
  • Looking for opportunities to improve collaboration (47.2%)
  • Increasing focus on changing customer needs (39.8%)
  • Focusing on service innovation (38.1%)
  • Focusing on process innovation (36.4%)

Most of the innovation dollars are being funneled into getting more out of existing products, while increasing efficiency and service levels.

The one thing I did not find in the study is if companies, as part of their efforts to “improve or extend” existing products are using “simplification” as method of increasing marketshare.  To learn my perspectives on this, read about the “innovation bell curve.”  This is an overlooked opportunity to gaining marketshare by leveraging your existing offerings.

You can read the full report on innovationtools.com.  This is an interesting report and offers hope for those who believe that innovation is the answer.

Having said that…

It is important to point out that studies like these are inherently biased and are not statistically accurate as the respondents are not randomized.  The companies who participate tend to be connected to the surveyors in some (albeit indirect) way.  Therefore those organizations are thinking about innovation more than others.

When I was recently asked what morale was like at my clients, I said “challenging yet optimistic.” But my client list is not representative of the norm.  Anyone who hires me is clearly still investing in innovation and continues to see its value.

Therefore, when reading this, focus more on the qualitative aspects rather than the hard, cold numbers.  There are interesting insights to be found.  And maybe there is even a ray of optimism shining through the cloudy economy.

The Updated Innovation Bell Curve

March 10, 2009

In a previous blog entry on the innovation bell curve, I presented a bimodal distribution curve rather than a bell curve.  I did this because I wanted to clearly show the contrast between the existing model and the emerging model.  I also did this because I am “graphically challenged” and I could not find a way of illustrating the movements in one chart.  However, the changes are more subtle than a total shift to a bimodal curve.  After working with a talented graphic designer for the past week, we finally have a more accurate depiction of the movement taking place.

You see the 3 main movements:

  1. Value brands are increasing their quality (including ease of use) and are moving into the Mid-Market area
  2. Consumers are increasingly buying value brands (e.g., store brands) as a way of saving money
  3. Premium brands are reducing prices while also offering different, lower-cost products.

The result is pressure on the Mid-Market brands that is squeezing many of these companies out of business.

Be sure to read all of the articles on the innovation bell curve to get a better understanding of the shifting dynamics.

Starbucks Fights Back

March 2, 2009

In my previous blog entry, I discussed the struggles of Starbucks and how the innovation bell curve predicted this. Their early response to increased pressure from McDonald’s and Dunkin’ Donuts was to reduce prices by bundling. Not a good move.

The other day they announced their new instant coffee.

Their press release describes VIA™ as “a transformational instant coffee that replicates the body and flavor of Starbucks® coffee in an instant form…(It) is made by adding hot (or cold) water to a cup, which brews the coffee in an instant.”

It comes in individual packets that cost under $1 each.

I like this idea because if the product is truly a high quality coffee and the price makes it more attractive, they will effectively leverage their brand while appealing to the left-hand side of the bell curve.  Instant coffee represents 40% of coffee sales, so it is a nice target market.

However, time will tell if this is a good extension of their brand, or if it dilutes their cachet.

P.S. In my previous article, I discussed McDonald’s forey into the higher-end coffee world with their McCafe offerings. Feedback from Starbucks junkies is that their products are as good – albeit appealing to a more mass-market palette.

P.P.S. My client gave me a Dolce Gusto machine. This capsule-based coffee machine makes cappuccinos, lattes, and espressos in no time with no effort or clean-up. Drinks range from $.50 to $1 each. The verdict? The cappuccinos are as delicious as those that cost many times more.  Much better than any instant coffee could ever be.  The only downside is that you have to invest in the machine.

The New Innovation Bell Curve

February 20, 2009

The old model of innovation is dead…and a new model has emerged.

For months now, I have been writing about the Innovation Bell Curve.  If you read between the lines, you quickly realize that it is no longer a bell curve but rather more of a bimodal distribution.

Therefore I have re-drawn my frequently used graphic and replaced it with the new innovation bell curve.

New Innovation Bell Curve

The Value Brands are rapidly improving their quality to the point where they are displacing mid-market brands.  And, with the tough economic times, mid-market buyers are seeking greater value and shifting to the left, exacerbating this impact.  Premium Brands remain differentiated (albeit sometimes niched) and always appeal to high-end, more sophisticated consumers.  As the recession lingers on, these premium brands now offer lower cost versions of their products, further squishing the mid-market.

If you have not done so, please read all of my articles on the Innovation Bell Curve.

Is Your Career Doomed? Mine Might Be.

February 19, 2009

I spend most of my days thinking about the “innovation bell curve.”  The concept is simple, yet profound.

Budget brands will continue to prosper as mid-market consumers move left to save money.

Although premium brands may suffer slightly, there will still be strong demand for high-end products and services.

It is the middle of the bell curve, the “mid-market brands” that are getting squished as consumers move toward greater value and premium brands reposition themselves (a bit more) toward the mid-market customer.

I’ve been thinking about this model as it relates to my career – giving speeches about innovation

On the right-hand side of this model are the “celebrity” speakers.  These individuals include Harvard Business School Professors (e.g., Clayton Christensen), former CEOs of big companies (e.g., Jack Welch), and major best-selling authors (e.g., Seth Godin).  These individuals charge MUCH more than I do.  But they are also a draw.  For large events, having one of the speakers on the platform will get butts in seats.

On the left-hand side of this model are the “vendor” speakers.  These individuals work for large companies who view speaking as great marketing.  These speakers are often not only free, sometimes they even pay sponsorship dollars to be on the platform.  VPs of Innovation for large consulting firms or presidents of innovation software vendors fall into this category.  They have something to sell the audience.

Where does this leave me?  It certainly leaves me rethinking my business model.  Then again, I am always rethinking my business model.

I am continuing to put more energy into books and products like Innovation Personality Poker®.  These move me towards the left-hand side of the model.  You can take me home for a fraction of the cost of one of my speeches.

I am also staying focused on the corporate market (rather than large conferences) because there is still great demand here.  With group sizes of 50 – 300, celebrity speakers are prohibitively expensive.  And given the small event size, the marketing opportunity is not as great for vendor speakers.  My business continues to boom in this area.

Finally, I am shooting the pilot for my TV show in April.  If all goes well, I may be able to re-position myself in the right-hand side of the chart – a celebrity speaker.  But of course, time will tell.

Where are you positioned?  Who is squishing you out of business?  How can you reposition yourself?

P.S. In a previous blog entry, when discussing the innovation bell curve, I talked about the wisdom of Mr. Miyagi in the Karate KidHe talks about those in the middle getting “squished like grape.”  I thought you might like to see the YouTube video…

Starbucks and the Bell Curve

February 10, 2009

It was just announced that Starbucks is now selling a coffee and breakfast for under $4. It’s true.  According to CNN You can get a 12-ounce coffee with a breakfast sandwich or roll or a 12-ounce latte with either oatmeal or a coffee cake.

According to CNN, “the move may be…targeted to drawing back business lost to more cost efficient retailers like McDonald’s and Dunkin’ Donuts.”

This is another examples of the “squeeze” of the players in the middle of the bell curve.  If you are not familiar with it, read  my articles on the bell curve of innovation.  Dunkin’ Donuts (DD) is a great example of a coffee shop budget brand.  As they expanded their offerings, they started to compete (at least in terms of coffee quality) with Starbucks.  Although some think of Starbucks as a premium coffee, most real coffee snobs (and I know quite a few of them) turn their noses up at Starbucks.  It has always been in the middle of the bell curve.   In the past, the middle of the bell curve was a great place to be.  No longer.

Last week I did a speech for the beverage division of a large food company.  This division is largely comprised of “make at home” coffee products, including instant coffee.  Business is booming.  They now have easy to use coffee, espresso, and latte machines.  These products represent an emerging “budget” entry.  For a relatively low cost, these machines produce a high quality, single hot drink with little effort.  There are no messy powders (uses simple capsules), no grinding, no cleanup.  Accessibility at its best.

I realize that Starbucks is more than coffee, it is an experience.  Unfortunately, today, people are less likely to pay for these experiences if other alternatives exist.

Are your products/services getting “squished?”  Can you make them more affordable?  More accessible? This may be the key to survival in this market.

EVA, SVA, and the Economy

January 23, 2009

While at Accenture, one of our analytical tools was Shareholder Value Analysis (SVA) – a tool based on Economic Value Added.  The premise is that by looking at a company’s financials, we can determine where to best target our innovation efforts.  The analysis can show us, for example, if reducing SG&A will have a greater impact on EVA than, let’s say, COGS.  It will tell us the impact on EVA if we increase sales by a certain amount.   It is a very powerful tool.  You can see the general model by clicking the image on the right.  The analysis is obviously a lot more complex.

This model works nicely in good times.  But does it work today?  What is it telling us?

I asked two of my ex-Accenture colleagues who are experts on SVA the following question:

Cost of Capital is part of the EVA equation. Given the credit crisis, how has this impacted EVA? Is cost of capital going up? If so, what does that mean in terms of where companies should invest then efforts? Or is it going down because the prime rate is so low? What does this mean that from a targeting perspective?

Here are the two responses:

Response #1: On the EVA question, theoretically the Cost of Capital is down given the prime.  But actually it’s up given the credit markets — the Libor is a good proxy (the rate at which banks lend to each other). The B2B rates are even worse, hence all the talk about the credit markets freezing up. In terms of targeting Cost of Capital, that’s a tougher question. Most of the action in EVA around the Weighted Average Cost of Capital (WACC) is related to more or less leverage. So targeting it would mean more leverage and there’s not too many companies that want to go in this direction now. In fact, we may have determined a “ceiling” on how far you can push on that lever.

Response #2: From a mathematical perspective, marginal cost of capital is fairly low these days. The availability of capital, however, is the real issue. In the current market it is difficult to raise capital. Therefore if an enterprise can generate excess cash and can identify opportunities with good returns they should certainly invest. It is no different for an individual. Assuming that a major catastrophe is not looming on the horizon and assuming that one has available cash, this is the time to invest. I should hasten to add that the “classical” capital market theories upon which WACC and EVA are based are NOT, in my opinion, quite valid in a tumultuous market where risk free rates are almost zero and people are simply keeping cash “under the mattress.”

Interesting thoughts.

My follow up question is, “Assumiung WACC is up, what is the relative impact of cost reduction versus revenue growth on EVA?”

What do you think?  I’d love to get many different perspectives on this topic.

P.S. I leave these financial calculations to the data experts (“spades”) and focus my energies on new ideas that solve problems (“diamonds”).

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