Tuesday, August 30, 2011

Shared Knowledge Creates Advantage

One of the most exciting developments affecting our business over the past several years has been the emerging management discipline referred to as “knowledge management” or “intellectual capital management.” While there are many management fads that come and go, this trend has the look and feel of substance with staying power.

In the mid-1970s, Peter Drucker was the first to observe how the nature of work has changed for many of us—that more and more we were becoming a “society of knowledge workers.” More recently, Ikujiro Nonaka and Hirotaka Takeuchi (two Japanese business school professors) developed this same theme further in The Knowledge-Creating Company. They proposed that the driving source of competitive advantage and continuous innovation is a company’s ability to create knowledge. Most recently, in their book, Working Knowledge, Davenport and Prusak apply what we know about market behavior to the hows and whys of knowledge exchange, an essential dynamic in the process of creating knowledge.

A growing number of large, established companies such as Dow, Skandia and others are rediscovering knowledge creation as an engine of innovation, and increasingly attending to their intellectual capital and knowledge creating assets to increase shareholder value.

In attempting to better manage their knowledge, most companies appear to be concentrating on the codification and valuation of their intellectual assets. A few others seem to be more interested in the generation of new knowledge. All are keenly interested in converting their knowledge into value. And sharing or exchanging knowledge is increasingly recognized as the key factor.

How and why knowledge is (or is not) shared is an increasingly important dynamic for managers to understand. Comparing the way knowledge is shared within an organization to the way goods and services are exchanged in the marketplace, Davenport and Prusak point to one very important difference: “Knowledge markets are different in that the seller keeps his knowledge when he sells it or gives it away. More importantly, the transaction itself often generates new knowledge. Newly acquired knowledge interacts with existing knowledge to spark ideas that neither buyer nor seller has had before. One of the major sources of new knowledge is fusion—bringing together people with different ideas to work on the same problem.”

I have been privileged to witness this fusion happen time and time again for almost two decades. This year we participated, largely in a facilitating role, in dozens of these “fusion experiments,” resulting not only in patentable inventions, but also in the generation of new knowledge.

One of these fusion experiments itself was particularly innovative. The objective was not only to create new and proprietary knowledge about the consumer, but also to create the mechanism to do so continually. This one client has already taken Nonaka and Takeuchi’s advice to heart: “the more mature the market, the more knowledge becomes tacit. Thus in a mature market [product developers] have to interact much more intensively and frequently with the market, since the importance of the more qualitative type of information increases with maturity.”

By sharing knowledge both within and outside of our organizations, even with end-users and customers, there are many more innovations that work™.

This article was originally published in Innovating Perspectives in January 1998. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 387-1270.

Tuesday, August 23, 2011

Busy-ness Kills Business

Many thanks to Marty Letscher who sent us a report he spotted in the Chicago Tribune by Dale Dauten—self-proclaimed corporate curmudgeon. Dauten asks, "What's the great enemy of innovation?"  And he answers, "Not evil management. Not bureaucracy, or even lack of imagination.  No, the great enemy of creativity is the To-Do List." 

"What Shakespeare called the 'rough torrent of occasion' carries us dutifully and efficiently to mediocrity.  While being creative may be one of the most important things you will do this year, it's one of the least important things you will do today.  Innovations slips away, not for want of skill or imagination but for want of a priority on today's list.  When people finally decide to get creative, they brainstorm till their eyes water, then everyone goes back to his or her desk, takes a look at the old To-Do and gets back to the same work; busy-ness eventually kills business."

I, for one, am guilty as charged.  However, while thought experiments may be the easiest prey of our To-Do Lists, the real victims are the actual experiments. What we learn from the results of these actual experiments, whether “successes” or “failures,” tells us whether we are on the right track and even whether what else is on our To-Do List is relevant or not.     

Most of us conform to Drucker's label of “knowledge workers.” As such, many of us crave the ability to show something tangible for our efforts. Taking some measure of daily pleasure from crossing off items on our To-Do Lists may give us a feeling of accomplishment. But if we are not learning anything new, it should give us pause to reconsider whether what makes it on to our professional To-Do List is getting us closer to creating value or merely keeping us busy.

Instead of the more common greeting “How are you,” my former boss and mentor, Bill Wilson, used to ask us “What's new?” and wait for an answer.  I always felt a little guilty when I couldn't immediately respond. However, as the years have gone by, I now find it much easier to respond to “what's new?” than the more difficult (and likely more valuable) “what did you learn today?” I suppose we need both questions, but ideas are just ideas without the traction that actual experiments can bring to them. 

Perhaps we too easily allow ourselves and our organizations to fall prey to the tyranny of  “success” and “failure” rates, increasing the former and decreasing the latter. If what makes it on to our organizations' To-Do Lists, even our “strategic To-Do's,” leads to results without learning, then we may be starting the precipitous decline into the no return(s) world of undifferentiated value. 

Our friend Leo Shapiro is fond of reminding us that most companies know what their competitors know and vice versa. Discovering something that your competitor does not know yet is what gives us a competitive edge. These discoveries are likely to come not only from thought experiments, but also from the actual experiments we muster the courage to actually do, not simply to check them off our To-Do Lists, but to learn. Perhaps we should invent a metric that helps us calibrate whether what we are doing is producing useful lessons—a “usefulness” rate—rather than relying on success and failure rates.  I suspect the more clever among you know how to design learning rich experiments without completely distorting the usefulness of the results.

The secrets of how we get and stay ahead of our competitors are reserved not simply for doers.  They are for aggressive learners—those who are hungry for discovering what their competition does not know, whether its about the end-users, changes affecting the distribution channels, or the potential of some competitive innovation in product or process.

I suspect that you and I are too busy to answer these questions right now. We have got to get back to our To-Do Lists.   

This article was originally published in Innovating Perspectives in November 2002. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 460-1313. 

Tuesday, August 16, 2011

Entrepreneurial “Vocation”

A successful company can occasionally lose touch with its founding entrepreneurial vocation. Reasons for these corporate wanderings in the wilderness range as much from success as from failure. Some of these periods of vocational drift go under the label of “diversification,” others parade as “stock buy backs” to preserve shareholder interests.  

Whatever the reasons, examples are all too plentiful. David Christiansen (The Innovator’s Dilemma), Intel’s Andy Grove (Only the Paranoid Survive), and departing-CEO of Hewlett-Packard, Lew Platt (“Whatever made you successful in the past, won’t in the future”), each speak of experiences and explanations for what can happen to successful companies that lose their way. We also see this vocational drift among more than one of our client companies. These wanderings may be more widespread than any of us would care to admit and some of them can be lethal to the company. (I have experienced this drift myself as a managing partner of a small consulting firm that after two decades was unable to rediscover its founding vocation).

The first challenge for any company is to have its management anticipate—or at least recognize—the problem. But once the problem has been recognized, what can a company do to recover or renew its entrepreneurial sense of purpose and “calling”? 

Look to the company’s past, present and future. To find where fresh entrepreneurial opportunity resides, not only to fuel future growth, but also to renew the company’s sense of purpose, we need to look and think back, deep and out (not far and wide).

Think Back.  Your company’s entrepreneurial vocation will resonate with the original value proposition—and subsequent ones—that propelled the company in the past and gave it a sense of purpose beyond “shareholder interests.” Ask what the company’s societal more than financial purpose might really be (Peter Drucker). But don’t stop here.

Look Deep.  Understand which company competencies are core—those few unique combinations of skills that manifest themselves in the end-benefits your products or services provide end-users. Know what your company’s “knitting” is, yet avoid the visionless advice of sticking to it (AKA “strategic fit”). And don’t stop here either.

Look Out.  Develop a chronic curiosity about the routines and rituals of current and potential end-users, especially how they are changing. Products and services are meaningless unless they provide some social benefit to those who use them in the context of some routine or ritual.

No one of these perspectives alone is sufficient. However, a creative combination of all three views just may help leadership recover and renew its company’s entrepreneurial vocation and help “redraw” the boundaries of the opportunity space that calls us into the future.

This article was originally published in Innovating Perspectives in September 1999. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 460-1313. 

Thursday, August 11, 2011

Capital Ideas

One of the most dominant criteria used to judge a new product and technology innovation is whether it fits with the corporation’s strategy, core competencies or operating philosophy.  Most companies have some explicit or implicit measures of relevance to judge a new product, process or technology innovation. Although this criteria is expressed in different ways, it usually asks the question, “Does this new idea—if implemented properly and effectively—fit”?

There are ample reasons for asking the question of corporate fit because eventually the corporation—or one of its business units—will need to adopt, nurture and raise the new born innovation if it is to succeed. And the adoption, nurture and rearing of a new born creates a demand on resources; and it competes for management time and attention against existing operations. So at first glance, asking the question of corporate fit makes sense.

Yet a growing number of companies are recognizing that the question of fit may have been applied too narrowly in the past. Many of these companies are now viewing their competition in different ways. Instead of viewing them as simply threats, many companies are seeing their competitors as potential sources of revenue. Thus the former question of whether an innovation fits with where the company is headed is, for these companies, evolving into a question of whether the particular innovation fits with where the industry or market may be headed. 

If an idea, discovery or invention conceived by a corporation’s R&D falls outside the corporation’s strategy or competencies but represents potential value to others in the industry, it is no longer dismissed as quickly as it may have been on the original criteria of fit. The innovation may represent new intellectual capital with the potential to generate revenues without requiring the company itself to commercialize and/or implement the innovation. Corporate fit may be giving way to “strategic industry fit” as the measure of relevance for many companies.

In his new book, Intellectual Capital, Thomas Stewart cites the experience of Dow Chemical Corporation which sought to do a “spring cleaning” when it created the position of Director of Intellectual Asset Management in 1993. “The idea was to turn a passive function—central record-keeping for Dow’s 29,000 patents—into an active management of the opportunities patents represent by cleaning up the portfolio and seeing what additional licensing revenue might be obtained from them.”

Gordon Petrash who holds the position at Dow found that not only did the company exploit fewer than half of its patents, but “most were orphans: no business unit was responsible for commercializing or licensing them.” Petrash found that Dow was not alone. Most companies have a high percentage of unused, unattended patents, which not only cost a lot to maintain, but also represent significant underutilized potential.

Dow and several other companies are starting to do something about these “ideas for others.” “Over ten years, Petrash figures, Dow will save about $50 million in tax, filing, and other maintenance costs. Even better: by bringing valuable but unused patents out from the corporate attic, he estimates that the company will increase its annual revenue from licensing patents from $25 million (the 1994 total) to about $125 million by the year 2000,” according to Stewart.

Those of us involved in product and technology innovations may want to rethink the parochial question of “fit.” Having good ideas for others just may represent a source of revenue that rivals the revenue derived from ideas that fit our company’s strategy and competencies.

This article was originally published in Innovating Perspectives in September 1997. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 387-1270.

Tuesday, August 2, 2011

Creating Future Options

Engineers and scientists are increasingly collaborating with their counterparts in marketing and operations to envision and prepare for their division’s or corporation’s future. Many of these planning efforts require both creative and analytical skills; and they frequently require the artful combination and integration of diverse facts, data, knowledge, common sense and imagination. In the context of these business planning efforts, research and development professionals often overlook the unique and useful point of view they can bring—a perspective that arises out of their unique functional responsibilities.

Creating future options for the business is a primary purpose for Research and Development. To fulfill their functional responsibilities, research and development professionals must spend considerable time thinking about future competitive conditions and possibilities. This requires a degree of competence in re-examining prevailing mental models about the current business and how they might change in the future. This competence brings a powerful and much needed perspective to multi-functional planning discussions. Seldom, however, do research and development professionals think about the mental models that are often unconsciously held—by themselves and others—about the future itself.

The fable of the six blind men and the elephant seems to fit as a description of how many management teams think about their collective future. The fable suggests that the future is like an elephant and each of us alone is like one of the blind men. Each blind man touches a different part of the elephant and, based upon his touch (experience), describes the whole elephant differently. One describes the elephant as a snake, because he is touching the elephant’s trunk. Another depicts the elephant as a tree trunk, because he is touching one of its legs, and so on.

The parable suggests that as we think about the future, it may be appropriate to remember that, as individuals, each of us may have only a part of the truth. Each of us is limited by our own perspective, experience and understanding. Therefore, it is risky to envision and plan for the future with like-minded individuals. Rather it is prudent to engage in these planning efforts with others who think differently. Thus, envisioning and planning for a future different from today requires the coming together of diverse points of view. This demands not only creativity, humility and patience, but also an appreciation of how each of us may think differently about the future itself.

Several years ago I attended the World Future Society annual conference. It is a very interesting and diverse collection of individuals, all of whom share very little in common except for an interest in things “future.” Surrounded by all this diversity I noticed that people seem to implicitly and unconsciously carry one of three basic orientations toward the future.

Some approach the future as something to predict. These types assume that the future is written. Precision, facts, projections, econometric approaches and the like are most important to people who carry this orientation to the future. Time frames tend to be relatively short-term and more operational for those who carry view the future this way.

Others approach the future as a problem to solve. These types assume that the future is only partially written. For them, we still have at least some control over our destiny. But as time marches on, we lose that control every day. So the challenge is to solve the future problems today. By solving these types of problems today we can influence the direction of future. Time frames tend to be more mid-term and developmental for people who are of this type.

A third group seems to view the future as a blank sheet. These types assume that the future is what you make it—it’s an “open book.”  Frequently, those who take this view appear to be relatively unaffected by operating concerns, preferring instead to think of the possibilities of new technologies and emerging market potential. Time frames tend to be more long-term for those with this view of the future.

Each of these mental models about the future has its own strengths and weaknesses. Each carries some element of truth and appropriateness. The point is not to argue which view of the future is better, but to ensure that all three views are being used in a balanced fashion.

As research and development professionals are constantly creating options for the future of the business, many are well positioned to expose unconscious assumptions that are held, not only about the business, but about the future itself. And in so doing, they make the actions and understanding that result from the planning process more useful to the corporation or division.

As an old philosopher put it so well, “The future is never what it used to be.” 

This article was originally published in Innovating Perspectives in June 1997. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 460-1313.