Perspective # 29 – Customer centric Innovation story

Customer centric Innovation story : Recently I heard a great story from an old friend who is a research scientist in Unilever Bangalore research center and was in the team which created one of India’s best known customer centric innovation – The Vim plastic coated bar which prevented the bar from becoming soggy and hence the brand became more economical. A bit of background on Vim bar.. Vim invented this category and is the market leader in the Rs 400 crore branded dish wash category. To sustain its lion market share they had a stream of innovations in the past – ‘lemon freshness’, ‘stain cutter’ etc. but the brand badly needed a boost as customers were shifting to liquid cleaners where the market leader Pril from Henkel was wooing the purchase influencers by their ‘free 25000 Rs. Insurance for maids’ plan (a classic ‘marketing innovation’) with actress Shobana as the brand ambassador. The much awaited breakthrough for HLL came in the form of Vim poly bar which fixed the ‘bar getting soggy and messy’ problem.

Coming back to the Vim poly bar story.. It took 3 years to develop the product which was gut wrenching as the soap had to jump three safety roadblocks – It should be safe to use, should not cause any adverse environmental impact when discarded by users and should be safe to manufacture in the soap factory. The researchers zeroed in on a polymer called monomer which can possibly do the wonder. The biggest challenge was to ensure that the polymer embeds uniformly on the dissolving soap, that too only on 3 sides with the top side uncoated! The entire chain starting from sales, packaging, raw material procurement, quality, transport, shelf life etc. needs to be tackled which was handled by taskforces,which means R&D personnel should know the complete value chain. As the end result or ‘what it takes’ is not known one could not tightly project manage this also.

The time pressure was very high as market feedback indicated that ‘liquid soaps’ are winning over bars and the 'which horse should I bet' classic innovator nemesis dilemma emerged (As a parallel activity another team started working on liquid soaps. They introduced the ‘innovative bottle cap’ that only allowed drop by drop usage. This helped HLL to support their ad liner - 'one drop is sufficient to clean a good number of utensils' and overcome the mental block among consumers that liquid cleaner is not ‘strong’ enough)

By this time ad agency Lowe had created the slick ads – a man soaks the bar in a bucket for 8 hours and then drinks the water! Imagine the pressure on the poor researchers! To add to this the soap needs to priced below the psychological Rs 10 for a 200 gm bar. The team also had to ward off the headhunters poaching the researchers for ITC and P&G research centers and also manage the Unilever's changing priorities for India :)

Absolute teamwork and motivation helped and at last they had a winner at hand! The monomer polymer was coated on soaps, precision UV treated for stability,the factory was regigged and was able to price the product right for rural market. As usual last minute surprises came during pilot tests – some users had a habit a cutting the bar into 3-4 chunks to ensure full paisa vasool :) and obviously the inventers had not designed the product for such demanding customers – fortunately it turned out that only few customers indulge in this practice! Sigh! Yes from the management perspective it was a leap of faith for three long years ..But so what ..Unilever who ‘invented’ this ‘soap category’ ensured that the category survives by reinventing themselves. A great story with valuable lessons.

Perspective # 28 – Competence-enhancing & Competence-destroying Innovations:

Competence-enhancing & Competence-destroying Innovations: So far in this blog we have explored many categories of Innovations – let us explore few more ☺ Tushman and Anderson introduced the terms - ‘Competence-enhancing’ and ‘Competence-destroying’ innovations. Competence-enhancing innovations leverage the current organizational knowledge to the next level. These innovations builds upon and reinforces existing competencies, skills and know-how. Turbofans in jet engines, series of breakthroughs in mechanical watches etc. are often quoted examples – all these innovations leveraged past tacit knowledge of existing processes and technologies which helped leap frog to the next frontier. Indian IT firms are classic examples – recall how they progressed from rote Y2K coding to advanced analytics now.

The next in the list is Competence destroying innovation, which obsolesces and overturns existing competencies, skills and know-how – a la phoenix legend. Think about how transistors destroyed vacuum tubes – or quartz watches killed (almost) mechanical watches. There are very few Indian examples – a close one is how Toyota Kirloskar killed the popular Quails Jeep with Innova – It was baffling, how on earth can someone think of discontinuing Qualis which had a loyal following with ‘classic’ SUV looks and replace with a odd looking Innova branded as multipurpose vehicle? End of the day the courageous step paid off. As per Tushman and Anderson "Competence-destroying innovations are negatively associated with incumbent performance, while competence- enhancing innovations are positively associated with incumbent performance—even as both are associated with system-wide organizational change."

Obviously competence-destroying innovations are tough to practice especially if one has to destroy the cash cow. Remember the famous quote of Ken Olson who was the CEO of DEC who spurned PCs and stuck to mainframe cash cows, "There is no reason for any individual to have a computer in their home" ☺ Though this quote has a context we all know that DEC died as they stayed away from competence-destroying innovations.

Perspective # 27 – Social Innovations:

Social Innovations: To start with let us define 'Social Innovation'. It is easy to get entangled in a debate over meaning and nuance of Social Innovation, as there are many definitions! As per Wikipedia Social innovation refers to new strategies, concepts, ideas and organizations that meet social needs of all kinds - from working conditions and education to community development and health - and that extend and strengthen civil society. As per the Centre for Social Innovation it refers to new ideas that resolve existing social, cultural, economic and environmental challenges for the benefit of people and planet. A true social innovation is systems changing – it permanently alters the perceptions, behaviors and structures that previously gave rise to these challenges. Many business schools like Center for Social Innovation of Stanford Graduate School of Business and INSEAD teach Social Innovation. As per INSEAD Social Innovation Centre Social innovation is the introduction of new business models and market-based mechanisms that deliver sustainable economic, environmental and social prosperity.

There are many global examples - "Mr. Condom", Mechai Viravaidya the activist in Thailand who has popularized condoms in that country. Restaurant Lentil as Anything where the customer decides what they want to donate for the food they've eaten, they decide what it's worth and give as they feel… The fashion store Clothing exchange where the currency is clothes where they replace shopping with the joys of swapping! ! Many many interesting examples.

'Hrudaya Post' offered jointly by the Postal Department and Narayana Hrudayalaya hospital is a great example back home - Under the scheme, first of its kind in the history of health care, heart patients in small towns and villages can go to any of the Post office and send their entire medical reports by scanning and uploading to Narayana Hrudayalaya. Checkout Ecomove cycle transportation catering to the crying need for people to adopt a travel solution that is ecological and economical.

Another amazing example is the LifeDream™ lifeskills training program. LifeDream™ addresses the needs of youth (18-25 years) who are constrained by low-income levels, inadequate skills, irregular employment, absence of opportunities for training and development, family indebtedness and little bargaining power at the economic or social level. They expect students to be successfully placed after the 3 month training and in return (Gurudakshina) they will work on environment and sustainability of their society. This novel experiment thus kills two birds with one stone. The pilot project is done at a Bangalore slum where all students got jobs plus there is a visible improvement in the environment.

Perspective # 26 – End of Financial Innovations?

End of Financial Innovations? : You almost get beaten when one talks well about Financial Innovations nowadays ☺ Newspapers are full of economic columnists and gurus – they explore in detail the jargons like statistical arbitraging, vanilla CDO’s, Synthetic CDOs etc. Revelations after revelations follows – they ‘now’ talk about how rating agencies doled out AAA ratings in return of higher fees (S&P charges as much as 12 basis points of the total value of a CDO issue compared with 4.25 basis points for rating a corporate bond) Now the experts are finding the real reason why shares of Moodys, have more than tripled to $68.60 on May 9 from $20.65 at the beginning of 2003! One wonders where these ‘know-alls’ were all these days! Many risk averse lazy fat bankers are also ‘seizing the opportunity’ and proclaim that it was their ‘water tight strategy’, which helped them survive. More disheartening is that they blindly tar Financial Innovations as it is fashionable nowadays, though the fact is that it was a combination of bonus greed plus home loans available zero money down (who realize the gains if the price goes up, and walk away unscathed if the price turns downward as the loans are non-recourse.) which created this mess.

Though there were ‘financial innovations’ like NINJA loans (No Income No Asset) the misuse and lack of regulations led the downfall. Also the 'cool financial innovation’ of slicing bad loans and mixing with good ones and distributing the losses all over the world was theoretically okay, as one even in wildest of dreams will not imagine a global total crisis as we are faced now!

Some of the innovations are scary !! Death bonds may be the most macabre investment scheme ever devised by Wall Street . As per Businessweek - "Death bond is shorthand for a gentler term the industry prefers: life settlement-backed security. Whatever the name, it's as macabre an investing concept as Wall Street has ever cooked up. Some 90 million Americans own life insurance, but many of them find the premiums too expensive; others would simply prefer to cash in early. "Life settlements" are arrangements that offer people the chance to sell their policies to investors, who keep paying the premiums until the sellers die and then collect the payout. For the investors it's a ghoulish actuarial gamble: The quicker the death, the more profit is reaped." :) :)

Hopefully better sense will prevail and ‘Financial Innovations ‘ will make a comeback soon!! ‘C’mon the show should go on!! Maybe it is also a good time to reread the award winner book - The Origins of Value: The Financial Innovations that Created Modern Capital Markets by William N. Goetzmann and Geert Rouwenhorst in which they beautifully portray Financial Innovations of good old days - Babylonian loan contracts, invention of interest in Mesopotamia, origin of paper money in China and continue with new innovations like mutual funds, inflation-indexed bonds, and global financial securities.

Perspective # 25 – Legal Innovations

Legal Innovations: It is worthwhile to review recent Pharma takeovers with an Innovation lens. Malvinder Singh and family cashed out India’s #1 Pharma player Ranbaxy to Daiichi Sankyo for $4.6 billion. Though Malvinder Singh brands this as a 'transformational strategic redefinition' and not a sell-off ,he is running laughing to the nearest bank ☺ .

There are also patriotic concerns like the Death of Dreams - "someday Ratan Tata may also be pushed to sell Tata Motors to a Toyota; or that the Infosys management may one day reach the conclusion that it is in shareholder interest to sell out to IBM? " Let us keep the patriotic concerns aside and look at this deal from the innovation perspective.Though this is loads of cash , this pales in comparison to possibilities if they persevered and had hit a blockbuster drug. ChrysCapital MD Sanjiv Kaul, summarizes this nicely “Commercially, it is an awesome deal. However, Ranbaxy was the all-conquering Indian hero and should have been the last man standing instead of being the first to capitulate. A huge positive for Ranbaxy but a negative for Indian pharma.”

Pharma giants worldwide are celebrating as they feared the ‘legal innovation’ (innovators working in tandem with legal eagles) weapon of Ranbaxy. Interestingly legal and professional fees of Ranbaxy was Rs 154 crore in 2007, which ate into their net profits of Rs 617 crore. Why global pharma is celebrating? They are hopeful that the Japs will control their ‘legal innovation’ tool ........ Let us rewind few years back on the Ranbaxy and Pfizer Lipitor dispute and read the article Investors biting nails over Lipitor which said “Lipitor, which is designed to lower cholesterol, totaled $10.8 billion in 2004 sales, the first drug ever to surpass $10 billion. Deutsche Bank projects Lipitor sales will grow to $14.2 billion in 2007 if Pfizer successfully holds its patents. But if Pfizer loses, it could face a $8.6 billion plunge in annual sales by 2007" Pfizer CEO saved his job by cutting an out-of-court settlement with Ranbaxy

............Now let us now look at another Pharma innovator Genentech which is in news, as Roche wants to increase its stake and has offered $43.7 billion USD. Genentech stock moved to $95 and some analysts are talking well over $100 !! What is the big deal about Genentech and why the hell is this company so valuable?What has Genentech got which Ranbaxy does not? As we all know India has the best brains and the world is flat! The answer is thought provoking .Checkout how Genentech save lives and their true Innovation history . This company also got sheer guts! Their famous Scientist CEO, Levinson persuaded the board to plow 50 percent of revenues back into research (yes 50% - not a typo) End of the day it pays... as we are seeing now!'Legal innovation’ is not worth it! It makes only small change compared to true innovation.

Perspective # 24 – Web 2.0 Innovations

Web 2.0 Innovations: For enterprises great innovation opportunities await for exploiting the new ‘rich’ Internet, which is branded as Web 2.0 and 3.0. Remember and compare those good old static yahoo pages (web 1.0) and yahoo today (web 2.0) which is much more engaging. Web 2.0 is many things to many people. For many of us it is social networks like Myspace or Facebook or Twitter the microblogging service .. for some it is Wikipedia, the free encyclopedia that anyone can edit or Second Life the 3-D virtual world entirely owned by its residents or Flickr online photo management tool or…. The list goes on! Nevertheless the business impact is profound – watch this youtube video in which the gurus like Bill Gates discuss The Impact of Web 2.0 at the Davos Annual Meeting 2007.

Organizations across the globe are trying to leverage the ‘new Internet’ to better serve their customers and improve productivity. Yes - it is not just the Facebook kids or Secondlife avatars but even nano scientists are using Web 2.0 . nanoHUB, the science gateway for nano-science and nanotechnology housed at Purdue University is an example. The Web site is a required bookmark for people who get excited about stuff like algorithms, carbon nanotubes, nanoelectronics and quantum dots. Michael McLennan, a senior researcher says “ the secret sauce of nanoHUB is a software application that is between the supercomputers at national research facilities that power the site and the Web interface. This "middleware," named Maxwell's Daemon, also finds available computing resources on national science grids and sends job requests to those computers faster than the blink of an eye.”

Innovations also await those who leverage mashups. A mashup (which may get replaced by semantic web later) is a web-based application that combines two or more different applications into a single view. For example do you want to know who speaks better –McCain, Clinton or Obama? Check this Speech Mashup. You don’t need to be a nerd to create mashups – just see how simple and easy it is to create this vacation request application mashup.

And behold. We are seeing just the beginning – ‘Rich Internet Applications’ a.k.a Web 2.0 plus ‘Cloud Computing’ plus ‘Software as a Service’ plus ‘Telepresence’ the high-definition video conferencing system will transform our business landscape. No – This is not a bubble like we had in the past as today there are strong business drivers like co-creation and prosumers who produce and consume – also Web 2.0 is not built on vanilla HTML ..now we have solid tools and technologies like Flash, Flex, AJAX, Folksonomies, Microformats, REST, XML, JSO, XHTML, RSS, Atom, Wikis, WebTop, Ruby on Rails etc.

This year Arcelor Mittal is going to host their annual shareholder meeting in the second life virtual world. The website says, “To access the ArcelorMittal virtual meeting centre, please ensure that Second Life is installed on your computer and that you have an avatar.” ☺ note this is a brick n mortar steel company..Julien Onillon, the head of investor relations gets excited and tells Wall Street Journal, “At a real shareholders event, people come for drinking and not for the event. We want people who are really interested to attend the event. Though anybody can attend the meet, security will be tight. Though there won't be any bouncers if a guy starts to get naked and says bad things to Mr. Mittal, he will be kicked out” and then the profound punch line “We’re going to be touching a population that has never been touched” They also plan to legitimize the virtual Linden Dollars with which you can buy real Arcelor shares! Geddit? The writing on the wall is clear – endless innovation possibilities!!

Perspective # 23 – Look around and leverage!!!

Look around and leverage!!! : It is not necessary to create something ‘new’ when you can ‘leverage’ what we have already. The key is to connect (or visualize) the business need with existing innovations. Steve Jobs once saw a crude demo of worlds first GUI at Xerox PARC Labs and he was able to ‘visualize’ the potential and was the driver for Apple’s famous UI …Which in turn gave ‘inspiration’ to Windows.

Every quarter Apple sells 10 million iPods whereas Sony, Microsoft Zune, Creative etc. languish – interestingly there were many MP3 players in the market before iPod but they never caught fire like iPod.

Sometimes ‘novel’ innovations can be detrimental! In fact the study of Brian Uzzi, professor at the Kellogg proves that truly novel products have a very high failure rate. It is not just products - the same applies to business model innovation also. Overture invented the ‘paid search’ business model innovation but it was Google who made Billions by executing better. Net net ---- Look around and leverage!!!

Perspective # 22 – Strategic Innovation

Strategic Innovation: Vijay Govindarajan and Chris Trimble, professors at Tuck School of Business at Dartmouth College introduce the concept of Strategic Innovation in the book Ten Rules for Strategic Innovators: From Idea to Execution. 'Strategic Innovation' as per these gurus is different from product innovation, process innovation, value innovation, service innovation or business model innovation. Strategic innovation is an experiment usually done by well-established organizations involving a sizable investment in an unfamiliar new business that may take years to produce a profit. The book includes case studies of some of the companies who ventured into this space - New York Times Digital, Corning Microarray Technologies, Hasbro Interactive, Capston-White and Analog Devices.

Their research explains how some firms are able to execute the big idea they had and how to build a new cash cow while sustaining the bread and butter existing business. The authors explain the three challenges (a: The need to 'forget' the parent company success recipe b: 'Borrow' some assets of the parent, such as brand, manufacturing etc. c: 'learning' on how to succeed in a new environment) The Key message is as fol. "The core competencies and routines you have developed to succeed allow you to innovate in an incremental way around the current business But, those same competencies and routines will hamstring entrepreneurial efforts in new businesses. If NewCo cannot forget the old, then it will have trouble learning the new.” and this means rewiring the organizational DNA across four areas: staffing, structure, systems, and culture.

Tough job indeed..Considering the shorter CEO life spans and the danger of missing the quarterly earnings estimates! Reminds of the famous Jonathan Swift quote "He was a bold man that first ate an oyster." Yes, it needs lots of courage and boldness to do a strategic innovation experiment, but it is worth it.