How and why global networks of highly specialized expertise create value in the challenge driven enterprise
In Open Business Models (2003), Henry Chesbrough observes, “An open business model uses a new division of innovation labor – both in the creation of value and in the capture of a portion of that value. Open models create value by leveraging many more ideas, due to their inclusion of a variety of external concepts. Open models can also enable greater value capture, by using a key asset, resource, or position not only in the company’s own business model but also in other companies businesses.” Then in Open Innovation (2005), he develops this concept in much greater depth. As Chesbrough explains, what he characterizes as “Closed Innovation” has a number of implicit rules such as ”The company that gets an innovation to market first will usually win” and “We should control our intellectual property, so that our competitors don’t profit from our ideas.”
As a result of several “erosion factors,” the Closed Innovation paradigm is rapidly becoming obsolete. (Please see Table 1-4, “Contrasting Principles of Closed and Open Innovation,” on Page xxvi in the Introduction.) “When the innovation context shifts from Closed to Open, the process of innovation must change as well.” Today, adoption of the Open Innovation model has become wide (i.e. global) and deep (i.e. enterprise-wide and even federation-wide).
In what could be viewed as a “State of the Global Marketplace” analysis, Alpheus Bingham and Dwayne Spradlin brilliantly explain how and why global networks of highly specialized expertise create value in the challenge driven enterprise. I especially appreciate the provision of a case study at the conclusion of Chapters 2-9. Each focuses on achievement of high-impact results. For example, HOW
2: Orchestration Creates Value for Li and Fung
3: NASA Expanded Its Innovation Framework to Find New Solutions to Old Problems
4: The Oil Spill Recovery Institute Tapped the Crowd to Be Better Prepared for Arctic Spills
5: Eli Lilly and Company Is Changing from a Closed Company to an Open Network to Provide Medicines for the Twenty-First Century
6: How Procter & Gamble Is Innovating Through Connect + Develop
7: Virtual Software Development: How TopCoder is Rewriting the Code
8: The Prize4Life Foundation Is Crowdsourcing ALS Research
9: President Obama’s Open Government Initiative Is Reinventing Government and Changing Culture
Obviously, the nature and extent of success of these open innovation initiatives vary and all of the organizations are large and have complicated operations. However, valuable lessons cam be learned from success as well as from failure and as the case studies suggest, decision-makers in almost any organization (regardless of size or nature) can apply many of these lessons when responding to their own challenges. Li and Fung, for example, is renowned for its leadership and management of a global supply chain more extensive than almost any other. Leaders within the hundreds of companies within that chain would be well-advised to read the case study in Chapter 2. In fact, I think the entire book is “must reading.”
Bingham and Spradlin devote Part I to explaining Challenge Driven Innovation (CDI) and then Part II to the Challenge Driven Enterprise (CDE). More specifically, they explain “how a marketplace of innovation allows us to reframe the innovation model, improve performance, and manage risk (Chapters 2-5) and then “virtualizing the business model to drive innovation, agility, and value creation” (Chapters 6-9). Appropriately, they focus on “The Challenge Driven Enterprise Playbook” in Chapter 8, reviewing and correlating many of their key points, then focus on “Leadership” in the final chapter because the success or failure of any open innovation initiatives will depend on the leadership (at all levels and in all areas) of the given enterprise.
These are among the dozens of passages that caught my eye:
o “Exploration Versus Exploitation (Pages 13-14)
o “Chat Rooms Versus Expert Help Desks” (29)
o “Open Innovation’s Unique Potential” (40-42)
o ”Seven Stages of Challenge Driven Innovation” (49-52)
o ”Tackling the Long Tail” (74-77)
o ”A Thousand and One Explorers or How to Find a Star” (78-79)
o ”Innovation Channels” (95-101)”Project Model Archetypes” (102-109)
o ”Hallmarks of the Challenge Driven Enterprise” (128-129)
o ”The Challenge Driven Enterprise as Business Strategy” (144-147)
[Note: Be sure to check out Enterprise Architecture As Strategy: Creating a Foundation for Business Execution, co-authored by Jeanne W. Ross, Peter Weill, David Robertson.]
o ”Key Points of the Book” (200-203)
o ”The CEOs Journey: Five Essential Waypoints” (206-208)
No brief commentary such as mine can do full justice to the scope and depth of the material (information, insights, and counsel) that Alpheus Bingham and Dwayne Spradlin provide in such abundance. However, I hope these remarks will encourage business leaders, indeed all who are entrusted with the leadership of any enterprise, to read and then re-read this book with appropriate care. In years to come, success or failure in the open innovation marketplace will be determined by those who do – or don’t – create value in the challenge driven enterprise.
How and why technology should support your organization’s strategy…not the other way around
This is one of the volumes in a series of anthologies of articles that first appeared in Harvard Business Review. Having read all of them when they were published individually, I can personally attest to the high quality of their authors’ (or co-authors’) insights as well as the eloquence with which they are expressed. This collection has two substantial value-added benefits that should also be noted: If all of the articles were purchased separately as reprints, the total cost would be at least $60-75; also, they are now conveniently bound in a single volume for a fraction of that cost.
Those who need to identify the best practices for unleashing technology’s strategic potential – but don’t have time to fine them — will find the material in this HBR book invaluable. Authors of the eight articles focus on one or more components of a process by which to clarify corporate strategy with one’s IT department, fund only IT projects that support its strategy, transform IT investments into profits, build one technology platform for an entire organization, adopt new technologies only when their best practices are established, use analytics to make smart decisions at all levels of one’s company, and integrate social media into one’s business.
I now provide two brief excerpts that are representative of the high quality of all eight articles:
In “Six IT Decisions Your IT People Shouldn’t Make,” Jeanne W. Ross and Peter Weill identify and discuss a list of six decisions for which senior managers should make. “The first three have to do with strategy; the second three relate to execution. Each is a decision that IT people shouldn’t be making – because, in the end, that’s not their job.”
1. How much should we spend on IT?
2. Which business processes should receive our IT dollars?
3. Which IT capabilities should be firmwide?
4. How good do our IT services need to be?
5. What security and privacy risks will we accept?
6. Whom do we blame if an IT initiative fails?
In “Competing on Analytics,” Thomas H. Davenport identifies and discusses six imperatives for a company to become an analytics competitor.
• Champion Analytics from the Top
• Create a Single Analytics Initiative
• Focus Your Analytics Effort
• Establish an Analytics Culture
• Hire the Right People
• Use the Right Technology(ies)
Other articles in this anthology I especially enjoyed include Ron Adner and Daniel C. Crow’s “Bold Retreat: A New Strategy for Old Technologies” and “Investing in IT That Makes a Competitive Difference” co-authored by Andrew McAfee and Erik Brynjolfsson
Enterprise Architecture As Strategy: Creating a Foundation for Business Execution
Jeanne-W.-Ross, Peter-Weill, and David Robertson
World Class IT: Why Businesses Succeed When IT Triumphs
Peter A. High
Open Business Models: How to Thrive in the New Innovation Landscape
Alignment: A book review by Bob Morris: Using the Balanced Scorecard to Create Corporate Synergies
Robert S. Kaplan and David P. Norton
Chesbrough is Adjunct Professor, Haas School of Business at the University of California, Berkeley, and Executive Director of its Center for Open Innovation. His landmark book Open Innovation: The New Imperative for Creating and Profiting from Technology (2003) articulated a new paradigm for industrial research and development. His more recent book, Open Business Models: How to Thrive in the New Innovation Landscape (2006), carries the open approach a step further, arguing that business models themselves need to become more open. Innovating business models requires open technology strategies, but also new approaches to managing intellectual property as well. His most recent book, Open Services Innovation: Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era (2011) explores innovation in a services context. He earned a BA degree in economics from Yale University, an MBA degree from Stanford University, and a PhD degree in business administration from UC Berkeley.
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Morris: Before discussing your latest book, Open Services Innovation, a few general questions. A great deal has happened in the global business world since our last conversation three years ago. In your opinion, which change during that recent period is the most significant and why do you think so?
Chesbrough: In the past three years, there has developed a short-term crisis in both the EU and the US, as each region wrestles with serious issues that are somewhat different. But these issues have had a dampening effect on innovation in both regions, as companies manage through a turbulent and uncertain environment. There is an unfortunate tendency to treat innovation as a luxury good, something to welcome in good times, but cut back on in tough times.
Meanwhile, there is a longer term and to my mind even more important trend, which is the rise of the “emerged markets”. China, India and Brazil of course, but also Turkey, Latin American, South Africa, places that many innovation scholars gave little attention to in the past. There is no question that in this rebalanced world innovation is going to become a global phenomenon to manage and to study.
Morris: As I survey the ever-increasing number of new technologies that appear, I am reminded of Goethe’s poem Der Zauberlehrling (The Sorcerer’s Apprentice) written in 1797. Do you share my concern that at least a few of the new disruptive technologies have taken on a life of their own?
Chesbrough: The statistic that blew me away the most was one I read on Henry Blodget’s Business Insider website. It showed that people are spending fully half of their online time on the Net on Facebook, and the other half on everything else there is on the Web. I don’t know if that’s true, but if so it is truly mind-blowing. I know that it is not true of me or my wife, and that it is true of both of my daughters. I don’t know what a world built around Facebook will look like in the future. It makes me feel like I am on my way to becoming obsolete.
Morris: Howard Gardner’s extensive research on multiple intelligences suggests this next question: Can an “open” mindset be developed? If so, how?
Chesbrough: Yes I believe it can be developed. While this is not an area that I have studied rigorously, I know from my own life experience that at the root of whatever open mindset I have is a basic humility that recognizes my own limitations and numerous areas of ignorance. Being open for me means not being paralyzed by those shortcomings, but using my realization of them as a spur to learn and to grow. When I must function as an expert, ironically that often blocks my own growth. When I get to ask questions, wonder why something is happening or how it works, I can feel myself being stretched ever so slightly in new directions. Happily, being a teacher and having children both force me into stretching myself with some frequency!
Morris: In The Opposable Mind, Roger Martin has much of value to say about integrative thinking. As he explains, it is ”the predisposition and the capacity to hold two [or more] diametrically opposed ideas” in one’s head at the same time and then “without panicking or simply settling for one alternative or the other,” be able to ”produce a synthesis that is superior to either opposing idea.” Integrative thinking requires a “discipline of consideration and synthesis [that] is the hallmark of exceptional businesses and those who lead them.” This seems to describe the open mindset you have endorsed for years. Am I correct?
Chesbrough: Yes, you are. I define open innovation to be a process whereby companies utilize external knowledge more extensively in their own innovation processes, and allow others to utilize the unused ideas they have outside. Open innovation thinking is an “and”, not an “or”. It is NOT an argument that calls for outsourcing all of one’s R&D. Rather, it is a call to integrate internal and external in the integrative manner that Martin articulates.
Morris: What seem to be the most common – and troublesome – misconceptions about open innovation and open business models?
Chesbrough: Many conflate open innovation with open source software, or open source development methodologies. While both concepts share an appreciation for open, participatory engagement of many people in the innovation process, open innovation explicitly incorporates the business model as a core part of the innovation process. Many adherents in open source explicitly eschew business models as irrelevant or even evil. Yet many observers of open source software itself would acknowledge that many businesses have built “open source business models” that helped them achieve greater impact and scale than they otherwise would have done. To me, this is both a good thing (it is good that these open source tools and products have expanded greatly) and a statement of how the world works. It also raises the possibility that adherents of open source sometimes overlook, that some business models could pervert the good intentions of open source and harness all that community contribution for nefarious purposes. This was a concern when Microsoft tried to fork Java some years back by offering a version that only ran on Windows. Oracle seems to be testing the waters lately with Java as they file suits against Google and others who utilize open source.
Morris: What, in fact, is true?
Chesbrough: Some of the most successful open source projects these days are led by large companies, who are investing significant time and effort into the open source projects because it directly or indirectly benefits their own business models (not because they have become altruistic). Contributors and volunteers need to pay attention to who is driving the agenda for these projects, so that they remain aware of how their hard work is being used in the world.
Morris: Now please shift your attention to Open Services Innovation. When and why did you decide to write it?
Chesbrough: Well, I focused my previous books on innovating new products and new technologies. But I often got questions about “what do I do if I am a service firm”? I realized that we know a lot about how to innovate new products, new processes, and new technologies, but know far less about how to innovate in services. Yet this is the majority of economic activity for most OECD countries. So there was a gap to fill. And there is good academic work going on in services innovation research, but little of that has been translated to a general audience. That is part of what I tried to do in Open Services Innovation.
What gives this topic special importance is the rise of China and other emerging economies, those that are now innovating as well as manufacturing the innovations of others. There is a risk of a commodity trap, where firms that focus exclusively on developing better products and technologies run the real risk of failing to differentiate their offerings sufficiently, and instead become commoditized by innovative entrants from the emerging parts of the world.
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To read the complete interview, please click here.
Henry Chesbrough invites you to check out the wealth of resources at these websites
Organizational transformation is not — repeat not – a zero-sum game
One of the most self-defeating mindsets is suggested by the admonition, “You can’t have your cake and eat it too.” Obviously there are situations when there are two options that are mutually-exclusive. However, most of the time, when facing a choice, it is a mistake to select only one and dismiss all others. Inder Sidhu does not advocate “a balanced compromise between two objectives, but [rather] a mutually reinforcing multiplier in which each side makes the other better.” He cites comments included in Built to Last (1994) co-authored by Jim Collins and Jerry Porras when discussing a highly visionary company “that doesn’t want to blend yin and yang into a gray indistinguishable circle that is neither highly yin nor highly yang; it aims to be distinctly yin and distinctly yang – both at the same time, all the time. Irrational? Perhaps. Rare? Yes. Difficult? Absolutely.”
Sidhu devotes the bulk of his lively narrative to explaining how exemplar companies such as Apple, BYD, Cisco, GE, Google, IBM, and Procter & Gamble achieve these strategic objectives:
• Improving the core business while conducting disruptive innovation
• Strengthening current account relationships while adding new ones
• Fine-tuning what is done well while transforming or eliminating what isn’t
• Creating customer evangelists while creating steadfast partners
• Thriving on “Main Street” while exploring “the road less traveled”
• Doing it right and doing what is right (i.e. what matters)
Obviously, doing both (of whatever) is not always possible or, when possible, advisable. Also, any lessons learned from the exemplar companies such as those Sidhu examines (especially Cisco) must be modified to accommodate the specific needs and resources of much smaller organizations.
With all due respect to the value of these lessons, I think the single greatest benefit of this book is the mindset it can help its reader to develop. Although Sidhu does not cite them and their books, he has clearly been influenced (albeit indirectly) by business thinkers such as Henry Chesbrough (Open Innovation and Open Business Models) and Roger Martin (The Opposable Mind) as well as Venkat Ramaswamy and Francis Gouilllart (The Power of Co-Creation). The most effective executives an open mind in combination with insatiable curiosity, emotional intelligence, and highly-developed skills for integrative thinking. Organizations as well as individuals must never play a zero-sum game. Long-term growth and short-term profitability are NOT mutually exclusive.
The authors’ recommendations in the aforementioned books track almost seamlessly with Sudhu’s own:
1. Be open-minded to possibilities, whenever/wherever they occur
2. Respect and examine those that are plausible, especially if unorthodox
3. Seek out collaborations that are mutually-beneficial
4. Welcome each “failure” as a precious learning opportunity
5. Juxtapose (for rigorous scrutiny) contradictory ideas and options
6. Embrace change as an ally, not as a threat
7. Achieve constant improvement with a discovery-driven process
8. Welcome and support principled dissent
9. Cultivate and nourish an insatiable appetite for learning
10. Constantly challenge what James O’Toole characterizes as “the ideology of comfort and the tyranny of custom”
I highly recommend all of the aforementioned books as well as Dean Spitzer’s Transforming Performance Measurement; also Enterprise Architecture as Strategy co-authored by Jeanne Ross, Peter Weill, and David Robertson.
How to grow, compete, and succeed in a services era
In his previous articles and books (notably Open Innovation and Open Business Models), Henry Chesbrough has a great deal of value to say about results-driven, multi-dimensional collaboration/co-creation within and beyond any organization, whatever its size and nature may be. Given the current economy and, especially, ever-increasing commoditization, his latest book is especially valuable because he thoroughly explains in it how to deliver better products and services for any business’ customers “that will allow it to grow and compete in a services era, ultimately escaping the commodity trap and that treacherous treadmill.”
Chesbrough makes the case for open services innovation in Chapter 1. I was especially interested in what he has to say about “The Commodity Trap,” one that reveals three business realities. Here’s the challenge: How to avoid or escape from that trap? That’s the focus of Part 1 (Chapters 1-5) in which he provides and discusses a framework to spur innovation and growth. This framework is based on four concepts and practices:
1. Think of your business as a service business
2. Innovators must co-create with customers
3. Open innovation accelerates and deepens service innovation
4. Business models are transformed by services innovation
Chesbrough observes, “By transforming products into platforms that incorporate internal and external innovations and surrounding these platforms with a variety of value-added services, companies can obtain some breathing space from relentless price and cost pressures.”
In Part 2, (Chapters 6-9) he describes a full range of applications and examples of Open Services Innovation (OSI) in a variety of industries, geographies, and contexts. More specifically, in larger companies (e.g. Xerox and GE), smaller companies (e.g. MTV Networks and NetBase), service businesses (e.g. Amazon), and in emerging economies (e.g. Asian Paints, SSIPEX, and ShaanGu). Then in the final chapter, Chesbrough explores “the larger context in which the shift toward services innovation is taking place.” More specifically, he discusses that shift in historic context, addresses especially important issues in service innovation, and then shares what are obviously heart–felt as well as highly-rational convictions about “the way forward” into an uncertain future that is certain to consist of both major perils and major opportunities. “It is high time to get started on the journey” and, I presume to add, this book would be an invaluable travel guide.
Innovation requires an open mind…and the courage to challenge “the ideology of comfort and the tyranny of custom.”
In preparation for my second interview of Henry Chesbrough, I recently re-read his Open Innovation: The New Imperative for Creating and Profiting from Technology and then this book, first published in 2006, as well as his latest book, Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era (2011). Chesbrough’s insights continue to be among the most influential throughout the business world within and especially beyond the United States.
What is an open business model? In Chapter 1, here’s Henry Chesbrough’s response to that question: “A business model performs two important functions: it creates value and it captures a portion of that value. It creates value by defining a series of activities from raw materials through to the final consumer that will yield a new product or service with value being added throughout the various activities. The business model captures value by by establishing a unique resource, asset, or position within that series of activities, where the firm enjoys a competitive advantage.”
Having thus established a frame-of-reference, Chesbrough continues: “An open business model uses this new division of innovation labor – both in the creation of value and in the capture of a portion of that value. Open models create value by leveraging many more ideas, due to their inclusion of a variety of external concepts. Open models can also enable greater value capture, by using a key asset, resource, or position not only in the company’s own business model but also in other companies businesses.”
These two brief excerpts are provided because Chesbrough`s definitions of various terms are far clearer and more authoritative than mine could possibly be. Also, these excepts address the “what” so that in the balance of this brilliant book, Chesbrough can then focus almost entirely on the “why” and “how” concerning the design, implementation, modification, and performance measurement of open business models.
I was especially interested in what Chesbrough has to say about what several quite different exemplary companies — including IBM, Qualcomm, Genzyme, Procter & Gamble, and Chicago (the musical stage show and film) — share in common: “each started with an idea that traveled from invention to market through at least two different companies” which shared the work of innovation, and, all were assisted by effective management of an open business model. Chesbrough also devotes a substantial attention to IBM whose type 3 business model (i.e. multiple segmentations, “inside-out” mindset) reached a financial crisis in 1992. Had the IBM board not replaced its then CEO with Lou Gerstner and fully supported his leadership throughout an immensely complicated and equally difficult transformation, it is probable that IBM would not have survived. Gerstner deserves much of the credit for the success of that “cultural revolution” (as he once described it) but much credit should also be assigned to IBM’s open source business model.
Procter & Gamble is another company which completed an especially difficult transition from having internal staff members who protected (hoarded?) various technologies so that other companies, including potential competitors, could not use them to becoming a company with a much more open approach to innovation. Chesbrough notes that P&G began to pay much greater attention of external licensing of its technologies, (e.g. to BearingPoint), now strongly supports openly partnering for driving growth equity joint ventures (e.g. with Clorox), and an entirely new perspective on competitive advantage.
I also appreciate what is rarely provided in other business books: detailed notes (Pages 217-242) that are clustered per chapter. As I read them, it seemed as if Chesbrough were standing next to me, supplementing his narrative with additional comments that are always informative and frequently entertaining. What also struck me about Chesbrough’s notes is that they enable him to acknowledge various sources with appreciation and admiration. His was obviously an open source approach to the research for this book and then to the writing of it.
To thrive in the new innovation landscape, change agents must have both an open mind and the courage to challenge what James O’Toole characterizes, in Leading Change, as “the ideology of comfort and the tyranny of custom.” They would also be well-advised to absorb and digest the material in this book.
After having read and reviewed so many business books, I now share brief comments about what I consider to be the 25 most valuable business insights and the books in which they are either introduced or (one man’s opinion) best explained. Here are the third five:
11. Leadership: In essence, leaders attract followers so that together they can achieve shared objectives, guided and informed by shared values based on mutual trust and respect. History’s greatest leaders are remembered for a heritage, usually based on great achievements that had an enduring impact. Alexander and then Julius Caesar for establishing or extending a great empire and Lincoln for preserving union despite a civil war.
The same is true of great business leaders such as Albert Sloan, Thomas Watson Sr. and Jr., and Steve Jobs. They could not have succeeded, had they not attracted sufficient followers who embraced both a dream and great challenges. Today, no organization can survive – much less thrive – without effective leadership at all levels and in all areas. Seth Godin said it well: “Initiative is taken, not given.”
Best Sources: Warren Bennis’ On Becoming a Leader, James O’Toole’s The Executive’s Compass: Business and the Good Society, Bill George’s True North: Discover Your Authentic Leadership co-authored with Peter Sims, and William C. Taylor’s Practically Radical: Not-So-Crazy Ways to Transform Your Company, Shake Up Your Industry, and Challenge Yourself
12. Management: In essence, managers organize and then complete tasks and among their most important tasks is supervising others. The most efficient managers do that most efficiently, with highly-developed emotional intelligence. I’ve always believed that managers help keep the promises that leaders make. With all due respect to compelling visions, someone has to take out the garbage, milk the cows, and turn off the lights. I agree with Thomas Edison: “Vision without execution is hallucination.”
Best Sources: Henry Mintzberg’s Management? It Isn’t What You Think!, Peter F. Drucker’s The Effective Executive: The Definitive Guide to Getting the Right Things Done, and Execution: The Discipline of Getting Things Done co-authored by Larry Bossidy and Ram Charan
13. Marketing: Create or increase demand for a customer-focused, multi-sensory experience that pro0mises a unique, enjoyable, and fulfilling experience. Initially, a “market” was a specific location; later, it was viewed as a specific segment of sellers/buyers (e.g. housing) and then as a cluster of demographics (e.g. males ages 29-45); later, marketing was defined as a brand, then a promise, and now an experience that creates “customer evangelists.”
Best Sources: Theodore Levitt’s The Marketing Imagination and Philip Kotler’s Kotler on Marketing.
14. Mergers & Acquisitions: Mergers are (usually) blended consolidations of two previously independent entities whereas acquisitions (usually) involve one entity being absorbed and then controlled by another. A majority of M&As fail or fall far short of expectations and the reasons vary but usually include irreconcilable cultural differences (e.g. values, silos, and turf issues).
Best Sources: Steve Steinhilber’s Strategic Alliances: Three Ways to Make Them Work (Memo to the CEO) and The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level co-authored by Timothy J. Galpin Mark Herndon
15. “Open” Mindset: This mindset is well-named because those who develop it are literally “open” (i.e. receptive to and respectful of) whatever possibilities they may encounter. They constantly ask “Why?” and “Why not?” They consider, compare/contrast, and integrate sometimes contradictory information but also opinions, assertions, theories, etc. The metaphor I use to describe this mindset is that it opens doors and windows and sheds light on whatever has possible relevance and value. The singe most significant, indeed defining characteristic of an open mindset is insatiable curiosity.
Best Sources: Henry Chesbrough’s Open Business Models: How to Thrive in the New Innovation Landscape, Open Innovation: The New Imperative for Creating And Profiting from Technology, and Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era as well as Roger Martin’s The Opposable Mind: Winning Trough Integratuve Thinking, and Morten T. Hansen’s Collaboration: How Leaders Avoid the Traps, Create Unity, and Reap Big Results
After having read and reviewed so many business books, I now share brief comments about what I consider to be the 25 most valuable business insights and the books in which they are either introduced or (one man’s opinion) best explained. Here are second five:
6. Customer Evangelism: Satisfaction is determined per transaction; loyalty is determined by sustainable satisfaction; zealotry occurs only when customers say “Yes!” to this question posed by Fred Reicheld: “Would you strongly recommend us to a friend, neighbor, or colleague?”
Best Sources: Fred Reichheld’s The Ultimate Question: Driving Good Profits and True Growth and Creating Customer Evangelists: How Loyal Customers Become a Volunteer Sales Force co-authored by Ben McConnell and Jackie Huba.
7. EDNA: This is an acronym I devised long ago when I began to teach English at Kent School in Connecticut.
Exposition (i.e. expose, reveal, open up, reveal) explains with information.
Description makes vivid with compelling images.
Narration explains a sequence and/or tells a story
Argumentation convinces with logic and/or evidence
Effective communication relies on mastery of one or more of these four.
Best Sources: Robert B. Cialdini’s Influence: Science and Practice (5th Edition) and Crucial Conversations: Tools for Talking When Stakes Are High co-authored by Kerry Patterson, Joseph Grenny, Ron McMillan, and Al Switzler
8. Employee Engagement: Recent research indicates that, on average, less than 30% of a workforce in the U.S. is actively and positively engaged. The others are either passively engaged (i.e. mailing it in) or actively disengaged (subversive and toxic). Increase active and positive engagement by (a) convincing workers that they and what they do are appreciated, (b) making crystal clear what expectations of them are and how their performance will be measured, (c) earning and sustaining their trust and respect by setting an with what you say (both verbally and non-verbally) and with what you do.
Best Sources: Freedom, Inc.: Free Your Employees and Let Them Lead Your Business to Higher Productivity, Profits, and Growth co-authored by Brian M. Carney and Isaac Getz, Simon Sinek’s Start with Why: How Great Leaders Inspire Everyone to Take Action, Edward M. Hallowell’s Shine: Using Brain Science to Get the Best from Your People, and The Why of Work: How Great Leaders Build Abundant Organizations That Win co-authored by Dave Ulrich and Wendy Ulrich.
9. Innovation: In essence, innovation achieves improvement of what already exists and that could include almost anything (e.g. an idea, assumption, theory and strategy as well as a product, process, or behavior). Almost anything can be improved and almost anyone can do that by embracing that challenge and pursuing that opportunity.
Best Sources: Tom Kelley’s The Idea of Innovation and The Ten Faces of Innovation (both co-authored with Jonathan Littman) as well as Steve Johnson’s Where Good Ideas Come From: The Natural History of Innovation and Henry Chesbrough’s Open Innovation: The New Imperative for Creating and Profiting from Technology
10. Lean: The concept of “less is more” can be dated back at least to ancient Greece. In a business context, its core concept is elimination of whatever is wasteful such as a production process that consumes too much time and effort as well as raw materials, one that results in omissions, duplications, redundancies, and flaws. Albert Einstein probably said it best: “Make everything as simple as possible…but no simpler.”
Best Sources: James Womack’s Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Revised and Updated and Lean Solutions: How Companies and Customers Can Create Value and Wealth Together, both co-authored with Daniel T. Jones
Note: You may also wish to check out Most Valuable Business Insights: 1-5.
Here is an excerpt from an article written by Henry Chesbrough for the Harvard Business Review blog. To read the complete article, check out other articles and resources, and/or sign up for a free subscription to Harvard Business Review’s Daily Alerts, please click here.
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The first decade of the 21st century brought about an incredible amount of technological advances — Facebook, Twitter, Android, iPod/iTunes/iPhone/iPad, and many other innovations transformed how we communicate, work, and live. But it is often the processes that helped create and manage these technologies that prove most enduring. Understanding the most important management innovations of the past will inform how we continue to expand and build on our knowledge to improve the innovation process in the future and advance human progress. So with a decade just ended, it is a good time to take stock of recent developments, and then look ahead to likely future management innovations.
To gain perspective, it’s often helpful to take a look back at the management processes developed in earlier eras.
In the 1960s, a significant management innovation that fostered the development of many technologies of that era was the concept of Systems Analysis that Robert McNamara and his colleagues brought into the U.S. government, particularly in the defense sector. This was a comprehensive way to assign priorities to competing projects, based on their total costs and benefits.
In the 1970s, the success of the Apollo missions to the moon spurred management innovation in project management. Program Evaluation Research Techniques (PERT) were developed to map sequences and dependencies in complex projects, so that the critical path that determined the date at which a project would be completed could be identified. PERT charts also helped companies assess trade-offs when activities on the critical path began to fall behind schedule.
The 1980s saw the rise of total quality management in the U.S., as the principles of Deming and Juran, which had been so influential in Japan in the 1970s, finally found acceptance in their home country. Related processes like Six Sigma and Total Quality Management became widespread, as the U.S. struggled to compete with higher quality products from Japan in many industries.
The 1990s witnessed the spread of supply chain management, as companies invested in sophisticated software and other tools to link themselves more and more closely with their key suppliers. The rise of the Internet allowed companies to link their supply chains closely to customer demand, as companies like Dell and Amazon took orders first, then organized the fulfillment of the customer’s order through their networks of suppliers.
What about the decade just ended? There hasn’t been much time to assess the many possible management innovations over the past decade, but one plausible suggestion is that this past decade has been the decade of open innovation. In this decade, companies started to open up their research and development processes, involving customers, suppliers, universities, third parties and individuals in the innovation process.
Armed with this perspective, where might management innovation go from here? I offer three short predictions:
First, management innovation will become more collaborative. Opening up the innovation process will not stop with accessing external ideas and sharing internal ideas. Rather, it will evolve into a more iterative, interactive process across the boundaries of companies, as communities of interested participants work together to create new innovations. Organizations like Syndicom, for example, have already established a community of spinal surgeons who meet up virtually to share effective protocols for screening patients for new therapies, and new methods and techniques to achieve better patient outcomes when utilizing those new therapies.
Second, business model innovation will become as important as technological innovation. It is generally accepted that a better business model can often beat a better technology. Yet companies that spend many millions of dollars on R&D seldom invest much money or time in exploring alternative business models to commercialize those discoveries. Not all business models are created equal, and we will learn how to design and improve business models in the coming decade. The rise of multinational companies from BRIC economies will further advance this trend.
Third, we will need to master the art and science of innovating in services-led economies. Most of what we know about managing innovation comes from the study of products and technologies. Yet the world’s top advanced economies today derive most of their GDP from services rather than products or agriculture. To preserve prosperity and high wage employment in the advanced economies, we will have to learn how innovation works in services, which is likely to differ from how it works in products. If we incorporate the above two predictions as well, one can predict that the winning formula for managing innovation in the next decade will be via open services.
Henry Chesbrough is a professor at the Haas Business School, UC Berkeley, and the author of Open Innovation: The New Imperative for Creating and Profiting from Technology (Harvard Business Press). His new book is Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era (Jossey-Bass). Follow him at @OpenInno or at openinnovation.net.
Please click here to read my first interview of Henry. He will soon complete a second in which he discusses his latest book.