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Innovation and Technology at Xerox PARC, with Stephen Hoover, CEO

  • Episode: 146
  • |
  • Topic: Innovation
Stephen Hoover, CEO, Xerox Parc
Stephen Hoover
CEO
Xerox PARC

The Xerox Palo Alto Research Center is among the most venerable institutions in Silicon Valley. Founded in 1970, PARC has led breakthroughs in areas as diverse as laser printing and user experience ergonomics. Wikipedia describes these accomplishments:

Xerox PARC has been the inventor and incubator of many elements of modern computing in the contemporary office work place:

  • Laser printers
  • Computer-generated bitmap graphics
  • The graphical user interface, featuring windows and icons, operated with a mouse
  • The WYSIWYG text editor
  • Interpress, a resolution-independent graphical page-description language and the precursor to PostScript
  • Ethernet as a local-area computer network
  • Fully formed object-oriented programming in the Smalltalk programming language and integrated development environment.
  • Model–view–controller software architecture

Our guest on this special episode is Stephen Hoover, CEO of PARC, a Xerox company. Hoover joined PARC in 2011 and oversees PARC’s work for clients in diverse focus areas and competencies including networking, novel electronics, human-centered innovation services, cleantech, intelligent systems, contextual intelligence, and more.

As Vice President of the Xerox Research Center of Webster (New York), Hoover supported core and next-generation research and development. He later led the global organization responsible for the company's software and electronics development. In these roles, Hoover was responsible for multi-million dollar R&D investments and product strategy encompassing several platforms and market offerings. He has led long-term technology investments in grid and cloud computing, nanotech, mobile, the Future of Work, and advanced printing and mass customization technologies.

Dr. Hoover earned his Ph.D. and M.S. in Mechanical Engineering from Carnegie Mellon University, B.S. from Cornell University, and 1 of 10 national fellowships at AT&T Bell Labs. He has 7 patents. Hoover has served on the Board of Directors for the Rochester Museum and Science Center, including leading its K-12 STEM Education Task Force; and is a regional Board Member of FIRST Robotics, an organization which inspires young science, technology, and engineering leaders through mentor-based programs.

LinkedIn: https://www.linkedin.com/in/steve-hoover-04376b3

Twitter: https://twitter.com/HooverSteve

Transcript

Michael Krigsman:

(00:02) Welcome to episode number 146 of CXOTalk, I’m Michael Krigsman and today I’m so excited because I’m speaking with Stephen Hoover, who is the CEO of the Xerox Palo Alto Research Center.  Xerox PARC is one of the most venerable research organizations in the world, and I’ll let Stephen describe all the incredible (Lost video 00:32 – 00:35) that were originally developed at PARC and so Stephen welcome to CXOTalk.

Stephen Hoover:

(00:42) Thank you Michael it’s good to be here.

Michael Krigsman:

(00:45) So Stephen just to begin very briefly tell us about your background. So you’re the CEO of Xerox PARC but how did you get there but very briefly.

Stephen Hoover:

(00:55) Sure, I have my PH.D from Carnegie Mellon and I’ve always been very interested in technology, from a technology side, the kind of the confluence of the physical world and computation. So my research area, technical research background is in applications of artificial intelligence to design tools, to kind of advanced methods of computer-aided engineering and then robotics and mechatronics.

(01:29) And when I finished my PH.D, I joined Xerox quite a while ago, actually 21 years ago and have been in a variety of innovation positions since then. Moving from the research side and into product development and delivery, and back into the research side in some technology strategy role. So it’s been a really interesting opportunity to kind of live across the whole spectrum of innovation from you know, crazy early ideas that you don’t know to work, to supporting you know 10 million customers with a new product release.

Michael Krigsman:

(02:04) So you’re a scientist who’s now managing scientists and researchers and I’m assuming some engineer people, different kinds of backgrounds. Tell us about Xerox PARC.

Stephen Hoover:

(02:18) So it’s a really interesting place and we have as you said earlier, a really storied history of founded in 1970 by Xerox, specifically chartered to create the office of the future. And we did some of the foundational work in personal computing, the creation of Ethernet, which we actually spun out here and in 3Com. To the creation of the graphical user interphase and the integration of the mouse into that to what you see is what you get editing, to the invention of laser printing and the commercialization of that.

(03:01) And have continued in that vein developing innovations for Xerox’s businesses today which is much broader than a printing business but is in fact half of Xerox’s is in the services business.

(03:16) We do transportation services for cities and other local governments, ranging from things like the EasyPass toll systems, and some of your users may be use EasyPass to fare collection systems. We work for healthcare companies in analytics and information management. We do customer care, we answer $2.5 million customer interactions every day that Xerox does.

(03:50) So at PARC, we are set up as a whole subsidiary to support Xerox by developing early-stage technologies and innovation to drive into their business, but what’s interesting we’re set up as a subsidiary also because we’re a P&L, in the sense that we’re in the open innovation business, so we do that not only for Xerox, but for other clients and customers in this world. We stepped into this model in the early 2000s, focused on open innovation as a business practice, actually before Henry Chesbrough coined the term open innovation in 2003, and it makes this a really interesting place, as well as the you know the business model and that focus on not only on some long term innovation and research but also how do I drive the current business results from that, putting those two together and then as I said doing it in this open innovation business model.

Michael Krigsman:

(04:53) So what’s the relationship that you have with Xerox, it’s really interesting that you’re

Michael Krigsman:

(00:02) Welcome to episode number 146 of CXOTalk, I’m Michael Krigsman and today I’m so excited because I’m speaking with Stephen Hoover, who is the CEO of the Xerox Palo Alto Research Center.  Xerox PARC is one of the most venerable research organizations in the world, and I’ll let Stephen describe all the incredible (Lost video 00:32 – 00:35) that were originally developed at PARC and so Stephen welcome to CXOTalk.

Stephen Hoover:

(00:42) Thank you Michael it’s good to be here.

Michael Krigsman:

(00:45) So Stephen just to begin very briefly tell us about your background. So you’re the CEO of Xerox PARC but how did you get there but very briefly.

Stephen Hoover:

(00:55) Sure, I have my PH.D from Carnegie Mellon and I’ve always been very interested in technology, from a technology side, the kind of the confluence of the physical world and computation. So my research area, technical research background is in applications of artificial intelligence to design tools, to kind of advanced methods of computer-aided engineering and then robotics and mechatronics.

(01:29) And when I finished my PH.D, I joined Xerox quite a while ago, actually 21 years ago and have been in a variety of innovation positions since then. Moving from the research side and into product development and delivery, and back into the research side in some technology strategy role. So it’s been a really interesting opportunity to kind of live across the whole spectrum of innovation from you know, crazy early ideas that you don’t know to work, to supporting you know 10 million customers with a new product release.

Michael Krigsman:

(02:04) So you’re a scientist who’s now managing scientists and researchers and I’m assuming some engineer people, different kinds of backgrounds. Tell us about Xerox PARC.

Stephen Hoover:

(02:18) So it’s a really interesting place and we have as you said earlier, a really storied history of founded in 1970 by Xerox, specifically chartered to create the office of the future. And we did some of the foundational work in personal computing, the creation of Ethernet, which we actually spun out here and in 3Com. To the creation of the graphical user interphase and the integration of the mouse into that to what you see is what you get editing, to the invention of laser printing and the commercialization of that.

(03:01) And have continued in that vein developing innovations for Xerox’s businesses today which is much broader than a printing business but is in fact half of Xerox’s is in the services business.

(03:16) We do transportation services for cities and other local governments, ranging from things like the EasyPass toll systems, and some of your users may be use EasyPass to fare collection systems. We work for healthcare companies in analytics and information management. We do customer care, we answer $2.5 million customer interactions every day that Xerox does.

(03:50) So at PARC, we are set up as a whole subsidiary to support Xerox by developing early-stage technologies and innovation to drive into their business, but what’s interesting we’re set up as a subsidiary also because we’re a P&L, in the sense that we’re in the open innovation business, so we do that not only for Xerox, but for other clients and customers in this world. We stepped into this model in the early 2000s, focused on open innovation as a business practice, actually before Henry Chesbrough coined the term open innovation in 2003, and it makes this a really interesting place, as well as the you know the business model and that focus on not only on some long term innovation and research but also how do I drive the current business results from that, putting those two together and then as I said doing it in this open innovation business model.

Michael Krigsman:

(04:53) So what’s the relationship that you have with Xerox, it’s really interesting that you’re an R&D organization that also has a P&L. so as you talk about the relationship with Xerox what does that P&L responsibility imply for you?

Stephen Hoover:

(05:10) So we have two fundamental roles for the company, one again is to do early-stage innovation and research for Xerox for itself, so we had a relationship that then looks like what any, not any but innovation for organizations and large companies that do that well, which means you are you know closely working with the business units on their strategies, you’re developing technologies and new offerings that extend their current business and take them into you know, radically new places. You’re working with corporate strategy, and again to ensure that you are both being influenced by the strategy but also influencing the strategy about where it needs to go, what technology to enable, and business opportunities come out of that

(06:03) And in addition we have this role in open innovation where we again, many of the early-stage technologies that we work on are very relevant to people outside of Xerox. So how do we go and find those customers and clients to help them in their business, and then even find relationships where we may do an early-stage innovation work that we start to work with external companies, and then we bring that company in as a partner for Xerox to extend its offerings. So this open innovation is a very interesting model.

Michael Krigsman:

(06:42) So is the reason for having a P&L is so you can self-fund the organization or are there other reasons beyond that.

Stephen Hoover:

(06:51) One of the reasons is absolutely to be able to look at a broader reach. One of the roles is if you are a good innovation organization or a parent company, then what you are doing is developing innovations were they're occurring in businesses, but also innovating in new businesses that they are not in today, to give them some options to expand beyond their current markets.

(07:27) Now, it may turn out that some of those things aren't the right things for the parent company to take up for a variety of reasons, and then what do you do with those. They may be great ideas but the parent company isn’t the right place to do that. Or it may not be clear in early-stage technology or what the real opportunity is, so how do you go and explore that? When you go explore it by creating those opportunities yourself as an innovation center and finding other companies to do it. So it isn’t one aspect is yes, it allows us to have a broader set of innovation exploration areas, but doing it in this way it forces you to do it kind of in the crucible of a market still, even if it isn’t clear that the parent companies the right company to take that up, or in what form.

(08:17) So it kind of keeps you honest in some sense in that regard because you are forced to go out and compete you know in that way and survive. So yeah, part of it is in the funding to be in broader areas, but part of it is you know, it’s a great crucible to test out new ideas. And you know, in my experience and a long history in innovation there are three major reasons why significant innovations fail.

(08:49) One of them is the technology isn’t right, it’s not ready and it doesn’t work. But another is that you have understood the market wrong. You’re not actually solving the problem you know, in a way that customers will adopt and the third is that you don’t have the right business model. That while you are creating value in the world for those customers, you’re not able to appropriate value along across the ecosystem to the right people in the right ways, so that the whole value chain makes money right. In the end, businesses are going to need to make money to deliver a product success to a customer over the long term. And so, if you’re not exploring those other two aspects; the market and the business model, then I would argue that you’re actually not doing a good job of innovation. So this gives us a much broader way to explore those areas.

Michael Krigsman:

(09:47) So as you say into the crucible of market relevance. Steve we’ve lost your video, so make sure it’s plugged in, if not we keep going because we have your audio, but it would be nice to see you as we saw you earlier.

Stephen Hoover:

(10:06) Google Hangouts says I’m on and I see myself, so sorry I’m not sure what the problem is.

Michael Krigsman:

(10:12) Okay there’s nothing to be done about that. So tell us about research at Xerox, the basic research versus applied or product research.

Stephen Hoover:

(10:36) If your listeners are interested and kind of want to understand this business of applied research versus basic research, and how to think about that in a model, I can refer them, there is an interesting book and the book is entitled Pasteur’s Quadrant, and it’s trying to capture you know in MBA school we learned how to describe the world in a series of 2 x 2 matrices, right. And this 2 x 2 matrices, in this case is articulating one axis is about knowledge for knowledge’s sake or is it about solving a problem.

(11:24) And the other axis is basically about the time horizon of which you are operating, and Pasteur’s Quadrant is this upper right quadrant where the idea is it’s not so much about knowledge for knowledge’s sake, but it is about generating new knowledge and new science because there is the focus area in which you know you need new knowledge and new science to understand the world, and then to create things in the world which deliver the results that you need, and that’s the idea. You know, Louis Pasteur, he was very focused on not just new knowledge, but okay, how do microorganisms work, right. What is going on in this space, and knew that knowledge was needed to then lead to things like antibiotics and antiseptics etc.

(12:15) And so we live in that quadrant and you know the one below it which is okay, with that new knowledge now how do I actually turn that into a product or an offering. So, so I actually described that left axis wrong, it’s about a product or an offering and about knowledge for knowledge sake, or is it about application.

(12:39) So we live more in that right-hand side of that, and balance between the upper right and the lower right. So we do care about understanding the knowledge generation, generally it is in a focused area where we believe that we can both contribute to the quality of the knowledge and convert over time that knowledge into an innovation, right. And that’s one of the distinctions between innovation and invention, innovation is an invention that solving a problem right that people care about. And in the end we are about innovation, right, but to do that we do good science in those focused areas and that’s the balancing act that I think you’ve got to walk, and a lot of the more pure basic science, understanding the world right. You know, string theory, those types of things, that is more in an academic environment.

Michael Krigsman:

(13:37) And what are research areas or innovation areas that PARC is focused on right now

Stephen Hoover:

(13:45) We’ve got five core areas. One of them is there are a lot of people focused on big data analytics and we certainly are as well, because the amount of data in the world and the sense that you can make out of it, it is absolutely one of the forefronts.

(14:08) One of the things that we try to do is bring a unique perspective to that, which actually ties back to our history and so I called human centered big data. And what I mean there, and I’m going to start with an analogy right, so one of the things that we described earlier at PARC in our foundational days is we looked at computing technology, and we made it so that people, average people can use it; the personal workstation. That you don’t need to be a computer programmer or an expert, and we were able to do that because we understood how work got done in an office. Right, and this is again one of the values that Xerox brings to the market today, Xerox talks about work and work better. Very focused on the job that the person is doing.

(14:57) And our role then is to understand the jobs that people are doing and how technology can help make them get that job done, and in a way again that is easy for the person to adapt. So for example, one of the things that we’re doing today is in the support of Xerox, Xerox as I articulated earlier has a significant business in customer care. Right so, 2.5 million customer interactions daily, well how can we learn over all of those interactions, which is a more likely problem to solve, more likely and answer to a problem a customer has.

(15:38) and And how can we do that in a way that today you have got capabilities where computers – you know, automated chat-bots, right. You’re chatting over the computer and on the other end it’s not a person initially but a computer agent. Well, it turns out that computer agents are pretty capable, but there’s a place where they run out of knowledge right, and what you don’t want to do is tick off the customer on the other end because what starts to become apparent is this stupid agent asking them stupid questions and not really resolving their problem.

(16:16) So we are developing technologies to actually have dialogues and monitor that dialogue. Is the person getting frustrated? Does the conversation seem to be progressing, and if not, how do you seamlessly hand that call over to a live agent in a way that nobody even knows or can detect. That all of a sudden there is a person on the other end answering the question because the computational agent has run out of its ability to solve the problem.

(16:44) So this idea of, again human centered big data, here the human is you know both sides of that equation, the end customer, so really understanding their state of mind and what they’re doing. Then the call centre agent and how are you helping them take over that call, and then as I said, actually using that as a learning opportunity. Now, we watch what the customer care agent, the human does to solve the problem, we take that data and through machine learning, make our diagnostic algorithms better for the next time.

(17:21) So I personally think there is a kind of a really big idea in here that is there is a lot of focus on pure automation and that’s good and it will happen, but as computers become more and more capable, you’re reaching this point where we're going to have human computer teams solving problems. And how do you interact together to come up with a better answer, and there is a lot of science in that, there’s a lot of technology in that. I can give your listeners an example in this, it used to be that humans were best at chess in the world, and then artificial intelligence, technologies came along and computers beat the best humans in the world. Big surprise you know just over a decade ago too many people and too many chess players.

(18:14) But who are the best computer chess players today? Human computer teams, literally you take a person and a computer and they work together because computers are really good at deep fast search, evaluating all of these alternatives, but they are not the best at what’s the high-level strategy. So, you may be thinking three or four strategies, the computer investigates those three or four strategies and tells the human the likely outcomes, the human therefore picks the next strategy and they play back and forth in the cycle. That’s what the best chess player is today, and we’re going to see work happen more and more in that way, so we have a significant investment in this whole area of machine learning and empathetic computing, understanding again what’s people’s intent and behaviors and how do I help them.

Michael Krigsman:

(19:07) So a core foundation of what you’re doing is this notion of simplicity and making the problems applicable so that people in ordinary offices can make use of these technologies

Stephen Hoover:

(19:22) Exactly, work can work better and it’s interesting you talked earlier you know at PARC we have a large number of scientists and engineers in the physical sciences and electrical engineering and chemical engineering, but we also have social scientists. Cognitive psychologists, who are experts at conversational analysis, ethnographers who go out and understand and observe and again as people are doing a job. What is the real job they're doing and what is the things that are hard and easy about it and what can help them best.

(20:00) So recognizing again, you got it dead right, this is about how do we do this simply and in ways that stick with people that actually they can use, requires that kind of deep understanding as well as you know, design thinking and those types of things. It’s more than that, there's an actual science into that. And we do work in areas again of modelling cognitive processes of people right, how do people think.

(20:32) We have some very interesting work in those areas particularly around human behavior. You know one of the hardest things to do is to change yourself right, be it I want to eat less, I want to exercise more, whatever that is, there’s an actual science of how change happens. And a lot of people are saying you know, we’re going to build apps to monitor your food and be the nanny on your shoulder telling you what to do. That’s not enough, you actually have to, again understand how people do change behaviors and then build those artificial intelligent agents and chat-bots to provide the suggestions and advice to people in a way that actually sticks.

(21:19) So for example we’ve gone out and it turns out one of the best ways for people to make changes in their lifestyle is a coach, and we’ve done studies of how coaching works, why does that work and how could you provide the same, and coaches are very sensitive and very dynamic right, watching how you’re behaving, how do you respond and then giving you the right nudge and are you the right person. You know, some people respond more to you know, ‘hey why don’t you try harder’ and some people respond more to ‘hey that was a great job’ right, and a good coach knows what you are and picks that up and tunes that message and styling to you. Again, how do we have computations to determine your personality profile and address you in that way, and there’s a lot of science and research we’re doing in those kinds of areas.

Michael Krigsman:

(22:10) I spoke yesterday with a woman named Julia Hu, who is CEO of a company called Lark Technologies which is actually working precisely in this area you were describing of coaching. So they take sensor data from phones and then they take human experts and they deliver the coaching through an app, so it sounds like this is a similar kind of area.

Stephen Hoover:

(22:38) Yes a very similar area and then how do you engage you know people’s social network right, into this in a fruitful way, and again there is some science there about what makes good teams, right, how to build a social circle in this case that is again, the right mix of people and the right kinds of things and yes how do you create you know, AI agents who can perform some of the coaching capabilities. That’s dead right, what’s interesting we’re doing this for a variety of reasons. I mean it’s actually very relevant as I said for Xerox as well as some of our customers outside of Xerox.

(23:26) We do a lot of work today with Healthcare companies in helping them kind of manage their information processes and more and more information is about their patients. You know, what are they doing and how are they behaving, so we see moving from not only kind of managing the digital flow of information inside the enterprise, but helping enterprise organizations serve their clients more directly. I mean as everybody becomes more and more connected I think there are fewer and fewer B2B companies and everybody in some sense becomes a B2B2C connected customer.

(24:13) Again, Xerox is more of traditionally a B2B business, but as our customers are business customers are connected to their customers in real time, which we all are; we’re a connected world, we all become a B2B2C company, so that’s part of the progression that we’re on.

Michael Krigsman:

(24:27) So as you’re dealing with these future of work issues, you talking about technologies but at the same time there’s just as much a cultural and human and social set of dimensions so you must be addressing those as well.

Stephen Hoover:

(24:44) Yes and there’s kind of two sides to that and one is inside our own innovation environment right. so one of the things that we really value at PARC, we think a lot of innovation comes from multidisciplinary work, which kind of makes sense because okay, there’s a well understood area or field, a silo, a technology and you make progress in that field, then there’s another one. And if you can connect the two in interesting ways then you know that’s a white space; it’s a new opportunity.

(25:29) And so I talked about there’s a lot of focus on big data and on what computers can do and we’re saying, but wait, it’s also about how people learn and how they think and you know, marrying those two together.

(25:38) So, one of the cultural things we try to do is to leave space for people to explore those white spaces because I think that’s a key piece of innovation. The other pieces is you know, a lot of ideas when you start out it’s not clear where they’re going or that they make sense but some of them will. But if you try to kind of narrow those down and control those too early before the people got the time to experiment and figure that out, then you’re going to miss a lot of innovation opportunities.

(26:17) On the other hand if you just keep pursuing a bad idea (26:21 – 26:23 Lost audio), well you’re wasting everybody’s time and money. So it’s a real balancing act on how do you give people enough freedom to kind of explore something at the beginning that it’s not clear that it makes sense, but they’ve got to have the ability to go and figure that out. And you’ve got to let people be – you know, you’ve got smart people who can think out of the box, you know you’ve got to let them be a little crazy every now and then. And if you try to turn this too much into a tops down process you’re going to end up in a place that’s not very innovative.

(27:02) So there’s this real balancing act between how do you set some large strategic goals, and then how do you give people the white space to innovate, but how do you devine the good ideas from the bad ones and kind of invest more in those, so there’s a whole art to that.

Michael Krigsman:

(27:22) So how do you herd the genius set of cats inside that crucible of the market of reality to produce something that’s absolutely great. 

Stephen Hoover:

(27:37) Well I’ll push on you a little bit is yeah that’s a piece of it but how do you let them herd you. You know it isn’t one way. I mean I don’t know where the right places to go, all right I’ve gotten really excited. You heard me earlier about the idea of human computer teams, and you know it does start to resonate with me as I said, I see a strong value in this idea of connecting humans and technology and solving their problems together, and again that’s just who PARC is.

(28:14) But framing this idea of new human computer teams, right, that’s not something I came up with. That’s the cats who herded me right and they start to talk that way, that’s an interesting metaphor. Right, on some levels it’s a metaphor, but metaphors are powerful because they give you different ways to think about things. And so when you start to think about it that way that’s a different way. So it’s not only how do you herd those cats but how do you get herded.

(28:42) That’s a really important piece, and if you want people who are innovative you’ve got to be open to that. I mean or they’re going to go somewhere else where people will stop and think differently right. So if I can’t think differently after some of the people who are working in here who have new ideas, then you better fire me because I’m not going to get the job done. So it’s a two-way street.

Michael Krigsman:

(29:07) So you yourself being adaptable in terms of what you’re doing and I’m assuming also in terms the strategy of the organization to some extent.

Stephen Hoover:

(29:18) The strategy of the organization, what are the you know the technical directions, as I said this whole framing around human computer teams it’s a relatively new framing. And I think again one it’s differentiated and valuable which is what we ought to be doing.

Michael Krigsman:

(29:34) What about some other areas, such as Internet of Things or automation and robotics. I know you’re doing work in areas such as that so talk about that a little bit.

Stephen Hoover:

(29:47) So the couple of different ways into that. So certainly the Internet of Things we see as the analogy that I make for people, it’s a really important trend for people who haven’t kind of thought about it deeply but have heard about it I think it’s a useful analogy.

(30:12) If you think about it you know one of the things that Google and search has done for us is it has infinitely expanded the capacity of the human memory, right. I don’t have to memorize all the facts in the world. I can go out and look them up and find it if I want to learn about reinforcement learning. You know, I go and Google it and I find the Wikipedia article and I learn about it.

(30:41) So it’s expanded my brain, my memory to be you know to nearly infinite capacity right, that I can quickly and easily find that new information and integrate it when it’s relevant to me on a preference.

(30:53) The analogy I want to make for you and your listeners about the Internet of Things is it’s about Googling reality. It’s about right now my body right, my body is the sensor. I see things, I hear things, I sense the world around me, well why does that have to be geosynchronous and why does it have to be synchronous in time and space from where I’m at, right which is what my censors normally are right.

(31:21) You know, I sense something at the time it occurs and it has to be near my body, well, the Internet of Things says no it doesn’t. I want to understand the state of pollution in Beijing; I go and find it on the internet, right.

(31:33) So this idea of kind of expanding your body right, so now take that idea and that’s for an individual not for an organization right. I can instrument and understand what my customers are doing with my products across the world now. I can understand are those devices starting to fail. I can understand the environment they’re in and adapt their behavior to be responsive to the local environment, right.

(32:05) You know, GE and their jet engines, when a plane’s running into a headwind you know, run the jet engine differently because I know I’m in that situation. So this idea of the Internet of Things and then you couple it with the data analytics and the machine learning so that I can make sense of all that data, right, to get a job done, what’s the problem you’re trying to resolve. And in our case Xerox we put – again transportation systems, cameras, where our cars are going. We as I talked about earlier about EasyPass, that’s the Internet of Things. You put a little transponder in your car, it senses as it goes by, it knows it’s you, it charges your credit card. But now, why do I have to put the transponder in the car, I’m going to have a camera up there to take a picture of your license plate because computers can see.

(33:00) And now I can see how many cars go by and I can help cities understand how to manage traffic better. You know there are cameras across cities for a whole bunch of reasons now. I can be looking at parking and helping people find where’s the open parking space.

(33:17) Connected cars, cars drive by, you know, how many cars today and I think it’s a regulation either today or next year that all cars will have a backup camera. Well, you’re driving down the road and your camera is seeing where there’s empty parking spots, how do I get that information and direct people to the open parking spots.

(33:38) To optimize again the capabilities for people to get the job done they’re doing, and so in our view that’s the power of kind of the Internet of Things and going to capture that power and then from a technology viewpoint where we’re working, whether it’s analytics to kind of optimize outcomes and behaviors.

(33:56) Another, we have a significant investment I talked about our foundational work with the creation of Ethernet, we have a totally radical new network and technology called Content-Centric Networking that really deals with two things; the explosion of information that is occurring and is just going to radically increase with the Internet of Things. Because now if I can Google reality, imagine all that data. And the reality is current internet protocols isn’t designed to handle that quantity of data. And the other piece as we all know is security.

(34:30) It’s not built into the network, it’s an add-on so Contract- Centric Network that builds security inherently into the network and therefore is much more secure.

(34:42) And then the third area for us is the Internet of Things, I talked about a lot of it is it’s sensing the world. How do I do low cost, highly distributed sensing if I’m going to put the things on the internet and if it takes $100 to put a smart computer on a bottle of vaccine to measure it’s temperature during to the shipping, well I won’t do that. but we’re working on technologies in areas like printed electronics, how do I make very low-cost electronics that are smart enough.

(35:21) Silicon has got cheaper and cheaper to put on more and more transistors. You know, my iPhone is the power of a crazed super computer from 1996 and I can buy it for 200 bucks with my 24 month plan. But if I want to put a temperature sensor on a bottle of vaccine as I said for 50 Cents, the reality is I don’t need a whole lot of intelligence, and it’s gotten cheaper with silicon to cram more and more intelligence, but what I want is a whole other price down at that dollar, smart label, sensor that I can put out and sense those things. So we have a whole focus area on printed electronics because we think that’s the Internet of everyday things. And we have a set of partners in that area and we’re also working with Xerox you know to take some of those initial technologies to market.

Michael Krigsman:

(36:06) How does this actually work? So do you have projects with commercial companies, what are the mechanics of that?

Stephen Hoover:

(36:14) So we have our sort of open innovation business. So the mechanics of this are, yes, we have four classes of open innovation models. I mean, one is a pure kind of collaboration, right. We’ll work in an area and we’ll go out and find a university or a commercial company who has got capabilities in those areas and we form an agreement to team and kind of I’ll solve this part of the problem and you solve that part of the problem, and we’ll share and compare information. And that’s a kind of a classic way to a lot of open innovation that happens, and by and large at most companies it means universities.

(36:58) The different thing that we do is we also go out and we do a fair amount of early stage, high risk research under Government funding, because it turns out the Government is willing to fund and has a process to fund a fair amount of potentially high value, but high value risk, longer term research and technology and development.

(37:23) So we go get research contracts with DARPA if you’re familiar with them, the crazy wing of the defense department research right. we don’t do any classified work but a lot that they do isn’t classified because they’re trying to again just uncover new areas. We do work with the National Institutes of Health; we do work with the Department of Energy in those areas. And then we also work with commercial clients where we are helping them innovate in new spaces and that’ll take two kind of forms.

(37:59) Sometimes it’s a problem that they have and we co-ideate with them, how could you solve that problem, we’ll generate ideas; generate a product out of that. we have a whole process for this. Again, kind of our history in innovation, there’s a way to approach that initial stage of ideation. And we work with them and develop that and then, if we find a good idea they’ll partner with us, fund us to do the forward looking research and innovation in those areas.

(38:31) And sometimes it’s again innovation that we’ve already developed, be it on government funding or other sources where we’re partnering with them to take that to market. I can give some examples if that would be useful for you.

Michael Krigsman:

(38:46) Well you know, we’ve only got about five minutes left, and I wish we had another hour but maybe tell us about automation and robotics, what are you doing with respect to that?

Stephen Hoover:

(39:07) Our focus comes in two ways and one is ties very much to what I articulated today, kind of half of Xerox’s business is in a document and information intensive business processes. And so there is what we call robotic process automation, which basically is looking at current workflows and work streams that are not automated, and how do you automate them in a digital world, right. So this is physical world automation and this is digital automation, and it takes the characteristics of the analytics and things that I talked about. And again automating customer problem resolution, and so there’s a whole focus in that area.

(39:49) In terms of the automation in the physical world, we’re focused on – and this is one of those areas where we’re kind of in advance of where Xerox current business is, but I think there’s some interesting long-term opportunities for what we call ‘Systems of Systems’. 

(40:12) So here we’re doing some interesting work with the defense department about – you know a passed example that I can talk about what we’ve done is satellite swarms, which is basically the idea is right now, we build one big satellite and send it up in space, and if that satellite is really expensive and if it fails you’re done.

(40:36) What if instead I could build a series of small satellites that were all individually re-deployable but can be controllable in some coordinated way. So you know, it’s a swarm of 50 satellites, small and cheap. Well if one dies that’s okay. When I want a lot of imagery on a certain place I’ll aim 50 of those at the same place, when I don’t I distribute them, and there’s a whole challenge of basically if you think about it you’ve got this complex system and you’re trying to redesign it constantly during its use because you’re trying to have it do different things. As pieces fail, and don’t fail, multitask again to look at different problems, to sense different things.

(41:18) So there’s a whole science around kind of AI planning and thinking how do you manage that system of systems. The other piece of it is, back to my human and computer team. In the end those systems are being tasked by a human. How does a human interact with that level of complexity and manage it and hope the system has local autonomy understand what the human that begat the task, what the human is trying to perform and coordinate and adapt together. And so we’re working in that space and I think about it as the Google autonomous car, well what do you do when you’ve got 1000s of autonomous cars on a road, and how do they behave together. And how do they behave with the humans that interact with them. so we’re at that system level of the problem, and we think that’s where the next wave of complexity as automation occurs it’s going to be systems of systems interacting and the science and again the interactions with people we think has interesting problem spaces.

Michael Krigsman:

(42:28) So a core part of your activities it sounds like this notion of where the person and the computer come together, and how does the person accomplish something of value of using the computer, and having the computer be structured and the user experience be structured so that the human can manage that complexity.

Stephen Hoover:

(42:51) Exactly and again there’s a whole set of science around that, someone goes that’s design no it’s more than design, you know it’s how do I understand, how does a computer build a model of the world that’s a shared model with the human because there’s assumptions. Again, you and I are having a conversation and there’s a lot of implicit assumptions that we share and those evolve over the conversation. How do I do that? Again understanding are you a pessimist or an optimist, are you a realist and how do you take information in better.

(43:27) And what is the best way to split the tasks that again leverages the strengths of computers and people, as computers become more capable that becomes more important and harder, and how do you leverage that. So there’s a whole host of scientific and technical challenges in there that we’re investigating.

Michael Krigsman:

(43:47) Well it’s a fascinating conversation Steve, as we go, as we leave unfortunately our time is just about up, what advice do you have for organizations who want to innovate, maybe they’re stuck with their traditional processes, and having resistance and pushing back, folks in those organizations, how can they do a better job of pushing innovation.

Stephen Hoover:

(44:14) The two biggest things that I see that people struggle with are 1) Is this idea of risk. Exploring new areas and ideas is inherently risky, and so much of our business process where you’re about delivery of something is about risk avoidance, and in innovation you need to do the exact opposite. You need to embrace risk, not because risk is good but because the reward that comes with solving that problem is valuable, and as I said it’s not about risk avoidance. I said earlier there’s three kinds of risk: technical risk, market risk, business model risk. Wherever the biggest risk is, how do you create an experiment to uncover is that risk, risk means I can’t predict the future. To predict what is going to happen or to design a system to you know, so that that risk doesn’t come true.

(45:17) So there’s this weird mentality shift of embracing risk and then agile learning processes around that. the other piece I would say is the hardest thing for existing businesses to do is to innovate in a way that challenges your current business model.

(45:38) New technologies can radically change business models and if you’re not open to that you’re going to get caught behind the eight ball.  So how in your organization are you leaving space and it can be very painful at first, I  mean you know if you’re used to selling hardware and software and cloud computing comes along, you’re going to think you’re going to make less money because people are going to buy fewer computers and you don’t get as much money off of every unit sell in the cloud. They can buy it by the drink, they don’t have to buy it at peak capacity, they buy you know the dynamic capacity.

(46:20) So yeah, you’ll make less money on each transaction, but the consumers in the end will consume more of it, and that’s the opportunity you’re going to get but it’s really hard for existing businesses to see that. so set up space where you are innovating and exploring innovation in ways that hurt your own business. If you don’t do that and technology changes your business you will end up a victim and you don’t want to be there.

Michael Krigsman:

(46:42) Well, it sounds like what you’re describing is the philosophy that you said earlier that you aim to yourself, but you have to let the cats hurt you as well, which means be open to change, be adaptable and flexible.

Stephen Hoover:

(46:58) Yes very good.

Michael Krigsman:

(47:01) Well Stephen Hoover, CEO of Xerox Palo Alto Research Center, known as Xerox PARC thank you so much for taking the time. This conversation has gone by in a flash and it’s been fascinating. Thank you so much.

Stephen Hoover:

(47:18) Thank you, take care.

Michael Krigsman:

(47:22) And to everybody who has been watching we really appreciate it and come back next week where we will be talking with the CIO, the Chief Information Officer for the city of Palo Alto. Thanks so much everbody, have a great week, bye bye.

Mentions in today’s show:     

DARPA:                                    www.darpa.mil

GE:                                           www.ge.com

Google:                                    www.google.com 

Lark Technologies:                  www.lark.com

Wikipedia:                               www.wikipedia.com

Xerox PARC:                            www.parc.com

Disruptive Innovation and Personal Reinvention with Whitney Johnson, Author

  • Episode: 142
  • |
  • Topic: Innovation
Whitney Johnson, Speaker and Author
Whitney Johnson
Speaker and Author

Disruptive innovation is critical for organizations wanting to maintain a competitive edge in our changing digital world. Author Whitney Johnson, a business partner of innovation guru, Clayton Christensen, applies these concepts to personal disruption.

This episode applies the lessons of corporate innovation to improve individual performance through personal disruption.

Whitney Johnson is an investor, speaker, author and thought leader on driving innovation through personal disruption. Johnson is a Founder and Managing director of Springboard Fund, and co-founder of Rose Park Advisors alongside Clayton Christensen, where they invested in and led the $8 million seed round for Korea’s Coupang, currently valued at $5+ billion. Having served as president from 2007-2012, Johnson was involved in fund formation, capital raising, and the development of the fund’s strategy. During her tenure, the CAGR of the Fund was 11.98% v. 1.22% for the S&P 500.

Previously, Johnson was an Institutional Investor-ranked equity research analyst for eight consecutive years, and was rated by Starmine as a superior stock-picker. As an equity analyst, Ms. Johnson’s stocks under coverage included America Movil (NYSE: AMX), Televisa (NYSE: TV) and Telmex (NYSE: TMX), which accounted for roughly 40% of Mexico's stock exchange.

Johnson is also a frequent contributor to and writer for the Harvard Business Review, and is a LinkedINfluencer. She has authored two books, Dare, Dream, Do (2012), and the forthcoming Disrupt Yourself(TM): Putting the Power of Disruptive Innovation to Work, out October 6, 2015. She is a prolific speaker on innovation initiatives, and has delivered keynote speeches to audiences of more than 25,000 on her ideas and vision.

Transcript

Michael:

(00:02) Innovation and disruption, these are important concepts that we think about in terms of organizations, and organizational change. Now, what happens if we aim the focus of innovation onto ourselves? My guest today on episode number 142 of CXOTalk has written a book exactly about that, and I’m here with Whitney Johnson. Whitney how are you?

Whitney:

(00:40) I am fine and it is a pleasure to be here.

Michael:

(00:43) So Whitney let’s begin by telling us about your background briefly and you’ve had a very interesting and broad career, so give us a sense of your background.

Whitney:

(00:56) My background is I actually studied music in college and ended up surprisingly on Wall street. So when I graduated from college I moved to New York with my husband who was pursuing his Ph.D. and I didn’t really wanted to do music. I was sort of at one of those places where I was just going to work for a little while and then you know have children etcetera and we got to New York and my husband’s Ph.D. was going to take six or seven years, and I realized we needed food on the table and it was my job to make that happen.

(01:26) So I went out and got a job and I found myself completely entranced by Wall Street. It was the late 80s early 90s and you had bonfire insanities poker and working girl and I decided I didn’t just want a job I want to work on Wall Street.

(01:43) So I started out as a secretary because I didn’t have a background in numbers, I had never stepped foot in a business course or accounting class. I had no connections, I had no confidence. So here I was, secretary to a retail sales broker in Midtown Manhattan.

(01:56) Well as I said I was super excited about being on Wall Street, so I started taking business courses at night, I had a boss who sponsored me and that allowed me to move from secretary to investment banking which rarely happens.

(02:09) Then along the way I moved into equity research where I was covering stocks, and then eventually a cofounder in and investment firm with Clayton  Christensen and so today I am now an author, speaker, writer, thinker about how do you drive corporate innovation through personal disruption.           

Michael:

(02:27) Wow, so you started as a musician and you became a secretary, and you became an investment banker from being a secretary, that is such an interesting path. Maybe explain how did you make the leap from being a secretary to being an investment banker.

Whitney:

(02:51) It’s a really good question. The best way to describe is and to go into my own psyche a little bit and I think that perhaps because I’m the oldest child in the family and tend to be pretty ambitious and driven.

(03:07) When I got to Wall Street and I discovered what it was. I didn’t know what it was, I grew up on the West Coast pre-Silicon Valley I realized this was really exciting and as I sat as a secretary, sitting you know sitting in the secretarial pool basically across from a bunch of new recruits, stock brokers who were all men, I realized that this sort of pom-pom, cheerleader person that I had been in high school that it was time for me to throw down my pom-poms and actually get in the game.

(03:36) So it was I think in part an awareness, the situational opportunity of being in a place where there were really interesting exciting things happening and then my own grit if you will and determination to take these classes, and then third I had someone who was willing to sponsor me. So there was a piece of context, so there was an internal piece and then there was an opportunity piece of someone saying in me you know what, I see something in you, I’m going to promote you onto this investment banking track.

Michael:

(04:02) Okay, so you were an investment banker and how did you then make the career transition to becoming an expert on innovation.

Whitney:

(04:18) Very slowly. It’s interesting right when we talked

Michael:

(00:02) Innovation and disruption, these are important concepts that we think about in terms of organizations, and organizational change. Now, what happens if we aim the focus of innovation onto ourselves? My guest today on episode number 142 of CXOTalk has written a book exactly about that, and I’m here with Whitney Johnson. Whitney how are you?

Whitney:

(00:40) I am fine and it is a pleasure to be here.

Michael:

(00:43) So Whitney let’s begin by telling us about your background briefly and you’ve had a very interesting and broad career, so give us a sense of your background.

Whitney:

(00:56) My background is I actually studied music in college and ended up surprisingly on Wall street. So when I graduated from college I moved to New York with my husband who was pursuing his Ph.D. and I didn’t really wanted to do music. I was sort of at one of those places where I was just going to work for a little while and then you know have children etcetera and we got to New York and my husband’s Ph.D. was going to take six or seven years, and I realized we needed food on the table and it was my job to make that happen.

(01:26) So I went out and got a job and I found myself completely entranced by Wall Street. It was the late 80s early 90s and you had bonfire insanities poker and working girl and I decided I didn’t just want a job I want to work on Wall Street.

(01:43) So I started out as a secretary because I didn’t have a background in numbers, I had never stepped foot in a business course or accounting class. I had no connections, I had no confidence. So here I was, secretary to a retail sales broker in Midtown Manhattan.

(01:56) Well as I said I was super excited about being on Wall Street, so I started taking business courses at night, I had a boss who sponsored me and that allowed me to move from secretary to investment banking which rarely happens.

(02:09) Then along the way I moved into equity research where I was covering stocks, and then eventually a cofounder in and investment firm with Clayton  Christensen and so today I am now an author, speaker, writer, thinker about how do you drive corporate innovation through personal disruption.           

Michael:

(02:27) Wow, so you started as a musician and you became a secretary, and you became an investment banker from being a secretary, that is such an interesting path. Maybe explain how did you make the leap from being a secretary to being an investment banker.

Whitney:

(02:51) It’s a really good question. The best way to describe is and to go into my own psyche a little bit and I think that perhaps because I’m the oldest child in the family and tend to be pretty ambitious and driven.

(03:07) When I got to Wall Street and I discovered what it was. I didn’t know what it was, I grew up on the West Coast pre-Silicon Valley I realized this was really exciting and as I sat as a secretary, sitting you know sitting in the secretarial pool basically across from a bunch of new recruits, stock brokers who were all men, I realized that this sort of pom-pom, cheerleader person that I had been in high school that it was time for me to throw down my pom-poms and actually get in the game.

(03:36) So it was I think in part an awareness, the situational opportunity of being in a place where there were really interesting exciting things happening and then my own grit if you will and determination to take these classes, and then third I had someone who was willing to sponsor me. So there was a piece of context, so there was an internal piece and then there was an opportunity piece of someone saying in me you know what, I see something in you, I’m going to promote you onto this investment banking track.

Michael:

(04:02) Okay, so you were an investment banker and how did you then make the career transition to becoming an expert on innovation.

Whitney:

(04:18) Very slowly. It’s interesting right when we talked about the stories because we’re able to craft them into this very neat and tidy narrative. But very quickly, so I was an investment banker, and then after I had my first child 19 years ago I wanted to stay in banking but there wasn’t really an opportunity and so people inside the banks said, why don’t you consider equity research. And so I moved into equity research in part out of necessity because there weren’t opportunities in banking, and that was where I would put a buy or sell recommendation on stocks, particular stocks in Latin America and telecom and media space. And then I did that for 10 years, and that was really a career maker job for me, which was interesting because it wasn’t what I wanted, and yet it’s made my career.

(05:05) After that ten years, we’re now in 2005, I decide that I’m going to take a step back and do now what in my parlance is disrupt myself, walk away from this really prestigious opportunity, become an entrepreneur, connect with Clayton Christensen around this time, and then became immersed and steeped in the frameworks of disruptive innovation and eventually began to think, you know what, these don’t just apply to products and services and companies, people and countries. They actually apply to individuals. And if you really want to drive innovation in organization, individuals also need to disrupt themselves.

Michael:

(05:41) So you ended up working with Clayton Christensen​ who of course is…

Whitney:

The father of disruptive innovation.

Michael:

Yes, so I have to ask what was that like.

Whitney:

(05:57) Well that’s a great question. So I have to say when I first discovered disrupted innovation, I was still a pre-analyst and I heard him give a speech about (innovators weren’t about for probably six or seven years?) and it helped me. I said oh my goodness, it helps me understand why I keep putting out these estimates for wireless in Latin America and they keep on beating their estimates and there are trouncing unclear?) it helped me understand this disruption that was happening.

(06:24) So I was really intrigued by the frameworks, I was really intrigued by him. If you’ve ever met him he’s six foot eight, he’s this very charismatic, smart, warm individual. And so it was a real opportunity to be able to work with him, because again he is so smart, he’s so charismatic, he’s so driven, and he works incredibly incredibly hard. So it was really a really honor to be able to work with him for nearly a decade.

Michael:

(06:53) Okay so now let’s talk about innovation and tell us about disruptive innovation, what is it?

Whitney:

(07:06) Well so you had asked me the initial question in our warm up conversation as sort of what’s innovation because we hear that word like what does that mean. Well innovation is really is basically something that is new, trying a new idea. Well a disrupted innovation is different or it’s a more defined or narrow definition of innovation in that it is an innovation that starts at the low end or in a new place and then eventually ends in industry. So I will give you an example.

(07:35) Think about Amazon in the 90s. When it was first launch it was this silly little thing where everyone thought that we don’t have time for that. They’re just doing this thing online. It’s not going to add much to our bottom line but just let it go.

(07:50) And so what happened then is that Amazon basically had this free pass in this foothold and once it had its own foothold it was motivated by bigger, faster, better just like Barnes and Nobel were, they just wanted to extend their margins and by the time it actually made sense for Barnes and Nobel to mount a counter attack it was too late.

(08:09) And so again low end or playing where no one else is playing and then eventually getting it’s foothold and up ending the industry.

Michael:

(08:18) And how is that different. We hear about disruptive innovation and sustaining innovation, and how are these different?

Whitney:

(08:27) So the best way to differentiate between the two is a disruptive innovation is something that is new, typically playing where no one wants to play or has thought of playing. So it’s new whereas a sustaining innovation is doing more of what you’re already doing.

(08:43) So in this particular example that I just illustrated for Amazon they were a disruptor. If Barnes and Noble or Boarders had added an online commerce an e-commerce platform for them that would have actually been a sustaining innovation, so part of this is really relative.

(09:01) But think about it, the most basic way is a disruptive innovation if you’re at the low end expand your margins, but if you’re an incumbent it decreases your margins, whereas a sustaining innovation actually expand your margins. 

Michael:

(09:16) So what are the conditions that need to be in place for an organization to undertake a program of disruptive innovation.

Whitney:

(09:31) I think that the first thing that there has to be a willingness to do it, and I think that that willingness has to be across the board. So oftentimes you’ll hear these ideas of you know the CEO, we’re going to be the disruptor, were going to innovate. And infact just the other day (unclear 09:52) saying you know disruptive being disrupted, so there’s this sort of drum beat of we need to do this. And you certainly do actually see a lot of disruption happening at the low end of people, low end inside an organization, basically people on the frontiers, people out in the field and they’re coming up with a lot of ideas.

(10:10) So one of the most important things that has to happen inside and organization is for the middle for what’s often called a frozen middle to be an opportunity for people in the middle to still be compensated for trying new ideas and infact incentivized for trying something new, and be given the time and the budget to to that. And infact encouraged to make mistakes. Otherwise they have absolutely no incentive, because if they do do something well maybe they will upside and if they don’t do something well they’ll probably get fired. So they have got to create a situation where the middle layer of management inside an organization has this incentive to drive this silly little thing, products forward.

Michael:

(10:53) So how do you do that, because in many of the large companies that I know middle managers are very focused on their very specific set of activities and their compensation encourages them to be focused there. So how do you drive these kinds of middle management shifts that will open up towards accepting disruptive innovation?

Whitney:

(11:23) Well I think it start with and this goes back and I’m jumping ahead a little bit, but this is one of the reasons why I’m talking so much about the importance of new drive through corporate innovation through personal disruption. Because we can talk about innovation all day long,  but I think if you’re going to have people that actually can disrupt they have to know how to disrupt internally.

(11:48) So for example one of the most important pieces around this is the idea of battling entitlement. So inside of an organization when you start figuring kinds of risk, you’ve figured out what kinds of market you want to go after, and you’ve figured out how to play to your strengths in the organization and it’s really easy to start thinking, well this is the way things are and this is how they’ll always be, our margins are expanding. People like what we’re selling let’s just keep going.

(12:12) So there’s this need to battle entitlement as an individual throughout the organization. And some of the ways that you can do that they are very simple kind of granular things but they start to un-thaw out that middle – apart from the whole idea of incentives. But one way is when I do these facilitations inside organizations I often find that different people in different silos are not actually talking to each other.

(12:39) And so one of the ways you could actually make this happen is to say to people, okay, how many people have you had lunch with inside of your organization over the last three months that are not in your department or who aren’t exactly like you.

(12:53) So if you’re in engineering, have you had lunch with someone in marketing, had you had lunch with someone in accounting? And it’s sort of an informal way of doing this, but as you start to have linkages with people in other departments and start to try to understand and speak and translate those languages you’re able on the middle management perspective to start to tear down these walls and in the words of Mr. Regan or President Regan and unthaw that middle so that this imperatives or (Edith’s) that the CEO has given and the ideas at the bottom are bubbling up and actually start to take root and move throughout the organization.

(13:30) The second thing I would say is watch your pronouns. Watch our pronouns because when you think about innovation it’s so easy to frame it as a battle. You versus me, David versus Goliath, disrupter versus disrupted and yet if you’ve got a brilliant idea and you are saying you and me and us and them, that idea is never going to happen.

(13:53) And so as we’re talking – notice how I switch my pronouns, as we’re talking inside of our company, how are we talking about the people that we work with and are we reframing problems and problems to be solved, and challenges to be wrestled with. Are we framing them as our problem as something we are going to tackle. And those small little shifts with have a surprisingly important and robust impact.

Michael:

(14:26) So one of the thing I’ve observed in companies I work with Whitney is this notion of the anti-innovation antibodies, right. The company want to introduce or people management wants to introduce innovation. And yet the entire organization clusters around those changes to make sure that it never actually sees the light of day.

Whitney:

(15:01) That is great. I have to tell you, when you first said that I thought of this metaphor that’s perhaps going to seem somewhat unseemly on here. But I have had this philosophy that one of the reasons there sort of the reasons that women when their pregnant et morning sickness is that they’re kind of rejecting all of this thing, you know what’s this forgein object doing in my body and then eventually they allow themselves to flood the fetus and then sit and be born. Actually the metaphor is very apt. you know first when somethings new you don’t know what to do with it. I would say that it’s really important when these new ideas come in. it’s start’s – I’ve lost my train of thought. What do I want to say here.

Michael:

(15:48) They reject the new ideas, they circle and bubble up…

Whitney:

(15:52) Yes okay, thank you. So what it means is that the reason that they circle or close ranks is that they don’t feel safe. They don’t feel safe. They afraid that if an innovative idea comes along they will not get credit and therefore not get paid and therefore not get promoted, or they worry that they’re going to lose their job. And what I would say is that whenever there’s a situation where people do feel safe as in they are doing a good job. They do a good job and a new idea comes along and for whatever reason they are doing currently they’ll be reallocated, resituated, then they will buy into it. I think it’s basic human nature, when we don’t feel safe we circle the wagon. So when people do feel safe then professionally they will work on those ideas and I think when you really step back and start to analyze it, it all comes around you, do I feel safe or not

Michael:

(16:53) So fear is the enemy of innovation and disruption.

Whitney:

(16:59) Absolutely 100%.

Michael:

(17:03) Well it makes perfect sense, so that then I’m assuming connects to what you said earlier that corporate innovation rise on personal disruption.

Whitney:

(17:21) Right, because if you’ve got people who – when you think about when you’re disrupting yourself right, theirs is something fundamentally humble about that. when you are on one learning curve think about this you know this wave or an S and at the top of the learning curve and you jump to a new curve, what are you doing?

(17:44) You’re first of all doing something that’s basically a freefall. So there’s a lot of trust in that. it’s a scary thing to do and you’re willingly doing it. Sometime you’re going to get shoved off, but sometimes you’re willingly doing it. and when you do that you are effectively saying, okay, I’m going to try something new. I don’t know how to do this. So there’s a humility in being willing to try something new. There’s a humility in saying you don’t know how to do this.

(18:11) And I think that when people see people that are more senior to them being open to saying I don’t know how to do this, can you show me how to do it. it creates this atmosphere where people do feel safe. But that part of it does absolutely come from the top, and sometimes people would say to me, well I’ll do it if my boss would do it. and my response is you know what? you can’t control what your boss does, you can control what you do and on your watch the people can feel safe. And overtime that’s going to make a difference and if it’s still doesn’t work then you may need to change firms. But for now, start with you, the people on your watch. See what happens, then you can make a decision, stay or go.

Michael:

(18:53) now you mentioned humility, earlier you spoke about entitlement and it seems that these are to opposites of one another, these are in opposition of humility and entitlement.

Whitney:

(19:06) They absolutely are and what’s interesting is that the research shows that the more you have, the more you think that you deserve what you have. So the more entitled you get, the more entitled you become. It’s tough and I think it’s one of the reasons why people need to surround themselves with truth tellers. I think that’s part of the reason why (? 19:35) ones are actually very important because they will tell you the truth in a way that people around you again who are concerned about their jobs just never will.

Michael:

(19:44) So truth tellers, so elaborate a little about that because I think that we all know that especially at the more senior levels of the company the leaders tend to be surrounded by not truth tellers but yes sayers.

Whitney:

(20:01) Yes, there are no name sayers. Again I think that is partly you know we’re in a high pressure position, we want to be around people that can help us get things done and so it’s important that one of the ways you actually balance entitlement and this goes to a senior person especially as you  - I’m going to back up.

(20:26) So I said earlier my husband was doing a Ph.D. in microbiology, so when he was doing his Ph.D. he would grow all of these beautiful cells in colored media and then after a couple of days it would use up all the nutrients. Those nutrients, some of them would be toxic and so they would have to re-plate the cells and into a new petre dish. So if I think about that especially for someone as very senior, women really like the colored petre dish, it made them go and feel comfortable, everybody likes you. But if you’re actually going to drive innovation in your organization and then you have to disrupt yourself. And one of the best ways to do that is occasionally put yourself in new situations. That new situation might be a willingness to listen to people who are junior to you, who you think you have nothing to learn from.

(21:13) Again there is a humility in that but again if you were to listen from whom we have nothing to learn from, and you allow people to tell you things that aren’t necessarily what you want to hear, and there are no adverse consequences for those people, that’s going to be a shock that’s heard around the company and it will make a huge difference.

Michael:

(21:33) So it seems from what you’re saying that corporate disruption is we can boil it down to being a state of mind among the people who are working on them.

Whitney:

(21:48) I like that. Yes I think that’s right. if I had to distil all of my ideas down into sort of 10 words or less it would be companies don’t disrupt, people do, here’s how in seven steps. I mean I really do believe that. I hadn’t thought of it in that way of describing it that way as state of mind but I like that.

Michael:

(22:10) So tell us about you mentioned the S-curve earlier and tell us about the components of that curve and the components of personal disruption that can serve as an enabler to corporate disruption.

Whitney:

(22:29) The S-curve was created in 1962 by E.M. Rogers and the whole purpose of it was to be able to analyze and have basically an algorithm in our equation for understanding ideas or get adopted over time.

(22:45) And so what he figured out is that ideas get adopted in the shape of an S, so think of an S in your mind that I’m drawing on the screen. At the low end or the base, they are going to start out and it’s going to be working really hard and it’s going to look like absolutely nothing is happening and that’s the low end of the curve.

(23:06) And then about 10 or 15% penetration of an opportunity you hit this tipping point, and then you move into hyper growth and you go into that steep back of the curve. And at the top of the curve you’re reaching saturation of 90% and then you may work hard but not a lot’s going to happen because you’re at the top of the curve and you’re not going to work that hard. It’s time to jump to a new curve.

(23:29) Now what I stated to think about is that this also help us to understand this hypnology of disruption. So again, low end of the curve you work really hard, and perhaps you understand I might get discouraged here because it looks like I’m putting in the time and nothing is happening.

(23:46) Then you go into this sweet spot where you start to get competent and very confident, all of your synapse are firing, feeling really really good to you. And then on the upper end of the curve, you can put things on automatic, it’s pretty easy but you’re no longer feeling those feel good effects of learning and so then you actually get kind of bored.

(24:04) And what’s important here is that that what seems like a plateau can actually become a plus. And so as I thought about this whole idea of companies don’t disrupt, people do and let’s think about the S-curve for how you manage the learning curve, how you become to be able to serve the S-curve ways with your own disruption. Then I came up with seven variables that would help you see your progress along the curve.

Michael:

(24:31) And what are the seven variables.

Whitney:

(24:33) Let me take a sip of water and I’ll tell you.

Michael:

(24:39) I was going to say while you’re taking a sip of water you’re obviously in an airport lounge and I should have asked you where are you?

Whitney:

(24:45) I am in Atlanta. I had to seriously run around trying to find a place to sit. So I’m in Atlanta sky lounge B or something and maybe because I gave them that advertisement I maybe should ask for my money back.

(25:01) Okay, so the seven variable. The first variable is taking the right kinds of risks. And that is whenever you’re jumping to a curve, this is the whole notion of you want to play what other people aren’t playing or haven’t thought of playing.

(25:15) And so if you’re playing what other people are playing you’re taking on competitive risk, where people aren’t playing you’re taking on market risk, and what we know from disruption theory is that when you take on competitive risk it may feel like it’s safer because it’s more certain and you know that the competitors can kind of scope it out. Market risk is actually maybe a little less certain, but it’s actually less risky. And again, according to the theory the odds of success from six times higher, revenue opportunity 20 times greater.

(25:46) Second piece of the curve is your strengths. Find an opportunity and then you’ve got to play to what you do well in what other people in your sphere do not. Oftentimes we may be passionate about something that we’re deeply passionate but it’s not necessarily what we’re best at. I know that it’s counter intuitive but some of the things that we do best we completely undervalue because they are so natural for us. It’s like breathings, so climbing that part of the curve is to figure out what your strengths are. Move them into a sort of fish out of water situation and then be willing to play with them.

(26:19) The third piece is that we’ve got to embrace our constraints. Today I’ve got a constraint of being in an airport. I’m embracing it I think, so how, so way. But it’s oftentimes as we look at these constraints and think if only I had. But what I’ve discovered is that those constraints often are very important for giving us a lot of feedback for along the curve and we’ve got all this stuff to bump up against. When you’re bumping up against things it gives you information like a skateboarder. They’re quick learners because they move incredibly fast and use the feedback.

(26:51) And so part of this is figuring out how to embrace this constrain and turn constraints, not into a check on freedom but a tool of creation.

(27:00) Step number four battle and entitlement, and we talked about that already, right at that sweet spot is if we start thinking we deserve it and we can slide back down. Instead figure out ways to battle that and to continue to move up the sweet spot of the curve.

(27:16) Number five, sometimes you have to take a step back in order to grow, that step back could be just pulling back to get a broader perspective. It could be changing ladders that you’re on in your career, like when I left Merrill Lynch I took a step back to try something new. Now the kind of counter intuitive piece of this is – wow I don’t know what we have here a paper shredder. The counter intuitive piece of this is that you’ve got a net pleasant value equation of that step back could have been a sling shot forward.

(27:47) Number six, this failure it’s due. The dirty little secret about failure is we may say we all celebrate it. we celebrate our own failures but we don’t really celebrate others failures. When we fail that is an essential part of this process. That being said we have to allow ourselves to be sad. We must allow ourselves to be sad and then once we allow ourselves to be sad, then we have to ask what important truth did I learn because of this failure. If we don’t it becomes a referendum on us, we wallow, we can’t move forward. So it’s really important to give it it’s due, learn what we need to learn and then move forward.

(28:24) And the seventh and final step is to be driven by discovery. Because you’re a disrupter you are looking for a market that has not been created and so you have got to and be willing to take a step forward to gather feedback and adapt it accordingly. And one of the things that I think is so interesting is that 70% of all successful businesses have ended up with strategies different to the one that they initially pursued. So it gives me great confidence to say I just look forward because and trust that I’ll eventually be able to see the top of the curve, but I can’t see it from above of the curve.

Michael:

(29:00) So we’ve been talking about both corporate innovation and disruption on the one hand and personal innovation and disruption on the other hand, but now let’s try to link them together. So if I am a senior manager inside a company and I’m interested in disruption and I hear these terms and hear about innovation, but I’m struggle I’m sure you have, we’ve all seen many senior executives and companies struggle. They try to put forward innovation, but it just doesn’t work. Why doesn’t it work and what’s your advice.

Whitney:

(29:49) So the first thing I would say is to think about this idea that companies don’t disrupt, people do because I think that most people don’t think of it that way.

(29:58) The second thing I would say is that in order for a person to disrupt because it is – disruption is actually again, you’re jumping to a new curve. You’re jumping from one curve to the next. There is an element of this that is very scary, and so it’s important to allow people to bring their dreams to work. They have to believe that those dreams that they have count at work and because it’s those dreams is what makes them problem solvers. It’s what makes them say nothing is going to stand in my way. It’s makes them hungry for a better life, so I really believe that dreaming is the engine of disruption.

(30:36) And so one of the things as a CEO or a leader is to say to them okay, am I allowing for people to bring their dreams to work? Do I know what their aspirations are sort of in this more holistic fashion?

(30:47) I know this sounds pie in the sky, but I do think that we are moving in that direction and infact we’ll get there and I do believe that millennials and thanks to millennials they are pushing us in that direction.

(31:00) The second thing that I would say is that when you’re disrupting and be aware that if you are scary and lonely you’re probably on the right track, and because it doesn’t involve a step back, you’re going to have some periods where Wall Street is going to go I don’t like what you’re doing.

(31:17) I remember when I was a Wall Street analyst and I was covering America Noble, and they introduced you know the straight talk, pre-paid wireless here in the United States and we just pummeled them, like what are you doing. The margins are terrible, (unclear 31:29) knew something that we didn’t know which is this was eventually going to be a really big business, and the margins just needed to be bad for a while. So it takes some real gumption to say, okay, you know I’m going to do this because it’s important to do it, so there has to be this time.

(31:37) So again, recapping really quickly, companies don’t disrupt people do and in order for your people to disrupt and including you, you have got to be able to bring your dreams to work because the dreaming is the engine to disruption. Understand that it’s going to be scary and lonely and innovation is an inside game. It starts with the inside, so you’ll start with your people and figure out are they playing to their strengths. Figure out are their some people that you need to allow to jump to a new curve. Sacrifice in short term productivity, but knowing that you will build loyalty and engagement. And that even although you feel that you’re on the sweet spot and don’t want to change anything, that’s precisely the time when you need to do it.  

Michael:

(32:24) So let me just push back on you on a point. I do understand what you were saying to allow people to bring their dreams to work and create the conditions of safety where they feel secure enough that they can do things differently, but there’s a lot of stupid ideas out there, and so how do you know that the ideas and that the disruption you’re pushing forward is actually a good idea as opposed to just, you know a fight of fantasy. 

Whitney:

(33:01) That’s a completely and totally fair question. I think that’s where this idea of you know, lean startup really comes in and I think is really really important and relevant and the whole notion of constraint, right. You can embrace constrain but you can impose constraints.

(33:16) So yes, there can be a lot of ideas that aren’t great, but if you say to people, all right, you’ve got a day, you’ve got a budget of $200, I mean like  I ‘m being really bootstrapping here. But a day, $200 and you can reach out to three people. Tell me what you come up with, and tell me the three questions, the three things that you need to know in order that need to prove true in order for us to pursue.

(33:45) So that’s where the whole discovery thing comes in and it’s what needs to prove true in order for us to be willing to pursue around this and it imposes really strict constraints. And one of the things you’ll find oftentimes a lot of people talk, talk, talk, talk. But when you say all right, you’ve got a day, go and do something, they won’t do anything. So that right there gives you a tone of information and win those ideas out that were never there.

(34:13) And I think that’s another place where the battle of entitlement comes in and sometimes we just want our brilliant ideas to be done because we want them done. But if we say to someone, okay, you’ve persuaded me that we should try this, so that takes some element of tenacity and now I’m going to give you some very strict constraints in which to try this. Tell me the three things you need to answer a senior board and you’re able to do that, then you are able to start to see ideas that are interesting and we can move forward from there. So it’s a very you know small process but I think that’s a way to really lead through.

Michael:

(34:48) You know it’s interesting you mentioned lean startup because we’ve had a couple of times on CXOTalk both Alex Osterwalder and Steve Blank, and Steve Blank is very focused these days on the application of lean startups to corporate management.

Whitney:

(35:09) Yeah, I think it’s absolutely such a sound idea and for me it dovetails beautifully with this whole notion of disruptive innovation, because you’re talking about low end, where no one else is playing and so lean startup is a great way to really iterate at the curve. So I think they are really powerful ideas and dovetails very nicely.

Michael:

(35:35) Okay, so we’ve got about 10 minutes left, so we don’t have that much time. So let’s dig into advice, first for corporations and then let’s talk about advice for individuals who want to take the lessons from your research. So let’s dig into corporations a little bit more.

Whitney:

(36:00) Okay, so let’s take each of these steps in turn and think about how we would apply them at the corporate level. So let’s start with the whole idea of taking on the right kinds of risks.

(36:14) So the first thing I would say around that is if someone comes to you and says, I’ve got this that there’s a need that’s not met, a job that needs to be done. No one’s doing it. I don’t have projections but I think we should design and test to find out. Be open to that, and that’s one of the ways to figure out if you’ve got a market opportunity.

(36:34) The tendency is to say well you do have projections, we don’t have projections, we’re not going to look at it. Well in which case that’s sustaining innovation, that’s not the kind of innovation that we’re talking about here, the disruption that it builds new businesses and creates something new.

(36:49) Number two, just stick to strengths, let’s talk about it on a corporate level. Are your people inside your organization playing to their strengths? And are you as a company playing to your strengths. One of the things that is interesting is that you will find that you’re getting a lot of feedback all the time, all the time from the customers. And yet if you really look at that feedback of what they like is that what they like? What you’re known for the jobs that they actually hired you to do? Is that what’s reflected on your website? Is it reflected in your marketing literature? Is it reflected in the conversations that your salespeople have? And so make sure you know what your company does uniquely well and identify that and play to that strength.

(37:34) The third is the whole notion of constraints, and depending on your company, if you’re really small company then it’s really about placing the constraints, whether it’s lack of time, money, buying or expertise.

(37:46) If you’re a larger company you may need to impose constraints. You may need to say, all right, we do have a lot of money but we’re going to take- and this is what (into? 37:57) it did with a thing called (Fossel 37:59) they wanted to improve the lives of Indias 1.2 million people but they didn’t throw a lot of money at it. They sent three engineers to India for three weeks, figure something out.

(38:07) That’s a pretty small budget so they imposed those constraints. The engineers embraced the restraints and they eventually came up with this algorithm that would allow farmers to get access to commodity prices at really significantly reduced their cost of doing business.

(38:24) The forth I would say is battle the entitlement is a very practical thing that I eluded to a moment ago is for people to talk to other people inside of your organization, and also do some of the hard work of translating the ideas. Can I explain what it is that I do or need to someone in marketing? Can I explain what it is that I do or need to someone in engineering and vice versa? So you’re starting to translate and have a sort of a UN if you will a sort of a lean work bond for innovation.

(38:57) Number five is the fact of growth, say that goes very much in this idea of allowing your people to bring drinks to work. I would say nearly every leader that’s looking into this can think of someone inside or reporting to them who they have moved to the top of the curve, it’s time for them o move, and you don’t want them to move because you need them, but you’ve got to let them move, because if you do let them move over time they are going to be even more productive for your organization.

(39:28) Sixth, is on a failure piece I would say do you ever allow yourself to fail, and when you failed and you talk about it in such a way that you explained to the team what you’re running. And if you have people on your team that you are not allowing to fail, then you may not have the right people on the team. Because if you think about it, with a small child that’s learning how to walk, if they fall down when their learning how to walk what do you do. Do you slap their hand? No, you just say come on, get back up. You can do it. And if you have the right people then you’re willing to do that, but if you’re not willing to do that, you may have the wrong people on your team.

(40:05) And then seven, I would say driven by discovery, that’s something I mentioned just a moment ago with these ideas is to say to yourself, what has to prove true for us to continue with this idea.

(40:15) So those are seven very concrete things that you can do inside of your company that can start to move the gears, they’re practical, they’re simple and they start to create this shift where that first disruption is happening and that will start to move into corporate innovation.

Michael:

(40:37) This notion of failure, and you know we hear a lot of fail fast and sort of glorifying failure. I really mean that very, very, very few people who say, I love to fail and that I’m glad to fail. So how do you reconcile. So when you talk about failure what does that mean exactly in practical terms

Whitney:

(41:00) I think that people are talking about the kind of failure when they’re testing something. They’re kind of you know doing it simply and there are no sort of ego attached to that. So that is important and we need to be able to do that.

(41:16) When I’m thinking about failure, is the kind of failure where you really care deeply about something. You really want to get it to work, and certainly in our society, we have this ethos, this is from Derren Brown you know, kill or be killed, control or be controlled, so if you fail it’s like you’ve been killed.

(41:36) So we have to acknowledge that when we fail we’re probably going to feel pretty bad. If you’re however aware of that, if we’re aware that our identity was attached to succeeding a fail and start gradually, gradually separating our identity around whether or not we’ve succeeded or failed and do that with the people around us. Then overtime if we can disconnect those two, then the failure does not become a referendum on us and we can celebrate it more. But I think this is one of these things that’s a task of a lifetime. The question is do I feel less ashamed of my failures today that I did two years ago. That’s the best I think we can do, because I think we’re always going to struggle with that because obviously the society in what we live in and how we’re wired.

Michael:

(42:30) Okay, really we have just a few minutes left, I wish we had more time. But now can you offer advice to individuals who want to be the face of disruption and innovation inside their organization. And also when an individual inside a company is facing those corporate anti-bodies – anti-innovation antibodies that we spoke about earlier, what should they do? So now this is advice to the individuals.

Whitney:

(43:04) Inside of a corporation. All right, so first of all market risk, competitive risk. Sometimes we go after opportunities inside a corporation. They can either be job opportunities or just ideas that everybody else is looking at. And so the advice would be is look where people aren’t working. Take on those projects that people don’t want to take on. The jobs that you think that need to be done, but aren’t that so exciting, that playing where no one else is playing or thought of playing. Because you will have a lot easier time getting buy-in because people just dismiss it. It’s not a big deal. It’s a silly little thing. So that would be number one.

(43:41) Number two is play to your strengths an again what I mean by that is  think about the things that you do well that you don’t necessarily often want to own. For me as an example, as a stock analyst, I was so proud that I built a really good financial model, and I wanted everybody to just say, wow you’re the best financial model builder ever.

(44:02) And I was good at it, but I wasn’t great. What made me a good analyst was my ability to read stocks, understand the psychology of a stock. To be able to make connections across lots of different silos, something that was a softer skill. And when people said I was good at this I was like, what are you dissing me, like the fact that I didn’t want to own the fact that I was  really good at this. So I would say to you that if you really want to soar inside of your company, get your pain of place skills, the thing that you have to do well. But then play to your constraints and strengths and it’s that is what’s going to allow you to be really successful. Compare that strength with an opportunity.

(44:39) Embrace constraints. I would say  - let’s use it basically, if you’re not getting a buy-in as an idea, then use that as an opportunity – which is a constraint. Us it as an opportunity to figure out how do I need to explain this in such a way that people will understand what it is that I’m trying to get done and use that fact that people don’t understand it as an opportunity to be much clearer on the value proposition if you’re talking to accounting, much clearer on how that plays and why the engineers need to do it etcetera.

(45:13) So embrace that constraint because it will become a tool of you being able to speak the language of innovation.

(45:20) The fourth would be buy-in time, which I kind of just eluded to is doing the hard work of getting buy-in’s and for your ideas that’s speaking in ’we’ and find ways to frame things as ‘we’.

(45:29) Fifth, taking a step back to grow. Sometimes you may need to take a role that’s a lateral move in order to move up. Sometimes you may need to take a step back in the sense that you sort of take one for the team to move things forward. You can’t do that all the time, but sometimes you just need to do that and this is one of the ones that I think that people, that when they realize that they may need to do that it’s a really important a-ha , because again there is a lack of selfish around that.

(45:59) Failures to, I would say that the best thing that you can do there is when you fail and when something doesn’t work, make sure you allow yourself to use that. Because if you allow yourself to be sad then the energy that you need in order to get back on the horse, get back on the saddle will be there. If you try to sublimate that sadness it sort of all your energy in general implodes and you need the energy that comes from having something you care very deeply about, so that you’ll go on to care deeply about something else.

(46:32) And then the seventh and final one to be willing to not know where this is all going to take you. I think most people would say if they think about their career path and inside of a company, is if I’m willing to just work really hard and take two or three steps forward I’ll figure it out as I go. And just to see far enough to that if this door can open more doors then that’s a good path to go down. You don’t have to know everything from day one.

Michael:

(47:05) Okay, well what an action packed 45 minutes this has been

Whitney:

(47:12) Good I’m glad.

Michael:

(47:14) So thank you so much. We have been talking with Whitney Johnson, who is the author of the book Disrupt Yourself and who I think personifies the notion of shattering, breaking, destroying the glass ceiling. Whitney, thank you so much this has been a lot of fun.

Whitney:

(47:38) Thank you for having me.

Michael:

(47:38) You have been watching episode number 142 of CXOTalk thank you so much, and next week we’ll be speaking with Elisa Steel, who is the CEO of Jive software. And Whitney thanks again for joining us.

Whitney:

(47:55) Thank you.

Michael:

(47:56) Everybody have a great week. Bye bye.

Companies mentioned in today’s show

Amazon:                                                                    www.amazon.com

Barns & Noble:                                                         www.barnesandnoble.com

Book: Disrupt Yourself by Whitney Johnson:      www.whitneyjohnson.com

Innovation Adoption and the 3rd Platform: My First Epiphany of 2015 (Part Three)

  • Topic: Innovation
  • |
  • Partner: SAP Service and Support
Fred Isbell, Senior Director - Service & Support Marketing, SAP
Fred Isbell
Senior Director - Service & Support Marketing
SAP

SAPThank you to SAP for underwriting CXOTALK.

Parts 1 and 2 of my blog series, “My First Epiphany of 2015,” focused on my thoughts about a recent experience at the IDC Directions 2015 event in Boston. After reviewing key concepts and the potential of disruptive technologies and innovation accelerators from the 3rd platform in Part 1, I focused on services aspects, key trends, and opportunities in Part 2.

During the event, I had the great fortune of meeting with Gard Little, research director of IT consulting and system integration research at IDC. Gard shared some great insights on where we are headed as he launches a new program for IDC supporting professional services opportunities on the 3rd platform.

Fred Isbell: The 3rd platform has begun to – and will continue to – shift the solutions landscape. Gard, what are the most profound changes you expect to see in our industry? How will they impact professional services firms and integrators?

Gard Little: I see two major areas being affected:

  • Substitution of software for consulting and human labor. An example of this is Dell’s Boomi for integration services. Its net impact will push humans more towards the front end of services cycle (planning) or the back end (support and project renewal or renovation).
  • Increase in crowdsourcing smaller packets of work to independent contractors who will compete to be selected. This will create more complex “teams” that need to be integrated and orchestrated by the prime contractor of a project.

Fred Isbell: How does the 3rd platform change the nature of professional services and integration engagements with customers? Can we expect further change in the solutions and services landscape? How will this transform how companies deliver their expertise and consulting or integration services for projects driven by shifts in the underlying technology?

Gard Little: We believe that the impact will be twofold:

  • Customers bring their experience with consumer electronics into the mix and are demanding faster, cheaper projects. As a result, consultants and systems integrators (SSI) need to have a solid enterprise architecture framework in place to make sure all individual projects can be integrated into a larger whole.
  • Customers will expect more automation in how consulting and systems integration (C&SI) projects are sold to them. For example, customers don’t want them using the cloud to deliver services. C&SI sales and business development professionals need to determine which services can be sold online and how to make sure digital channels complement the traditional sales cycle.

Fred Isbell: You discussed a new “framework” at this year’s IDC Directions for viewing professional services firms and integrators that provide cloud-related services. Please explain your observation and how this segmentation will enable firms to meet customer needs.

Gard Little: Basically, the first two columns — Offering and Go-to-Market (GTM) — show changes that I believe vendors will most likely make to meet the needs of their customers.

All three types of players – pure-play consultants, 3rd platform natives, and solution providers – will have to adapt. Those native to the 3rd platform will have minimal changes to make, but more will be required for pure-play consulting and solutions providers. And while more partnering will be expected for the first two class of players, we’ll see increased use of automated and digital mediums for selling by solution providers.

Likewise, we’ll see a mix of business strategy. Pure-play consultants will emphasize the transformational aspects of engagements. Solution providers will have a broader approach to their ecosystem and orchestration efforts. And those players already native to the 3rd platform will grow and expand from their current positions.

Fred Isbell: Gard, you were quoted at IDC Directions Boston saying, “Winners work while losers wait.” Can you please elaborate?

Gard Little: Vendors have some say when determining a cloud-centric future for their organization. So it’s important to not wait for others to act. Rather, you must push forward with your own plans.

I gave several key recommendations in my session at IDC Directions 2015:

  • Companies have an agenda in this change. This affects the input they give on how it will unfold for them and their customers.
  • Have a sense of urgency. Don’t be paralyzed – you need to act now.
  • Be more proactive in what you want your organization to be. The future is not written in stone (yet). It’s more like wet concrete – so change it while you can!

Fred Isbell: During his opening keynote for IDC Directions 2015, Frank Gens, chief analyst for IDC, cited that the 3rd platform will dominate IT spending by 2020 and will become the main enabler for the majority of projects, new solutions, innovations. Looking forward into your crystal ball, which major themes do you think your IDC Directions session will cover in March 2020?

Gard Little: If I’m lucky enough to be at IDC and presenting at Directions 2020, I’m guessing that two themes will be:

  • Which 2nd platform vendors made it to the 3rd platform and survived – and which did not
  • The six innovation accelerators that made a material difference in project spending in the C&SI space

As you noted, Fred, the Internet of Things (IoT) was quite ubiquitous at IDC Directions this year. My current hypothesis is that while the IoT is white-hot now, it will generate less long-term spending on C&SI than what we will see from cognitive systems. Stay tuned to find out!

Thanks, Gard, for your time. We look forward to the exciting times ahead in our journey to the 3rd platform and the adoption of new innovations!

Gard Little is research director of the IT Consulting and System Integration Research Program at IDC. He is responsible for subscription and custom research around system integration and consulting services worldwide. This program covers a broad range of IT-related markets – from consulting and integration to enterprise application services and infrastructure optimization. As lead analyst for IDC’s Cloud Services: The Professional Services Opportunity program, Gard conducts research on customer demand and vendor offerings for project-based services related to building and implementing cloud services. Gard earned his MBA from Northeastern University with a concentration in high-technology firms and holds an undergraduate degree from Vassar College in cognitive science.

Fred Isbell is senior marketing director for SAP Services & Support Marketing for Thought Leadership, Demand Management, and Planning for the worldwide Services & Support Marketing team. A 15-year veteran of SAP, he formerly led SAP Global Services Marketing Field Engagement, the North American SAP Services regional marketing team and SMB Channels Marketing for the SAP Small and Midsize Business team. Prior to SAP, he held a variety of senior solutions, services, and partner marketing roles with Compaq and Digital Equipment Corporation (DEC). Fred is an honors graduate of Yale University with a BA in Economics and Political Science, and has an MBA from Duke University’s Fuqua School of Business, where he was a Fuqua Scholar.

This originally appeared on Digitalist Magazine

Innovation Acceleration and The 3rd Platform: Model Trains, Dining, and 3D Printing

  • Topic: Innovation
  • |
  • Partner: SAP Service and Support
Fred Isbell, Senior Director - Service & Support Marketing, SAP
Fred Isbell
Senior Director - Service & Support Marketing
SAP

SAPThank you to SAP for underwriting CXOTALK.

Earlier this year, I discussed my first epiphany of 2015 at the annual IDC Directions Event in Boston:  the evolution of the 3rd Platform and technologies such as cloud, social, mobile, and Big Data. What brought on such as moment? For me, it was one of IDC’s 6 technology accelerators: 3D printing.

From my experience of dot-matrix models in the early 1980s to several generations of HP LaserJet printers, all-in-one devices; and increasingly sophisticated printing, scanning, and document management solutions, printing has mainly meant generating a hard copy of an electronic document. And this has proven to be a traditional definition of “printing” that has stood the test of time.  However, thanks to the rise of 3D printing, it appears that our understanding of this term will soon be disrupted.

Source: IDC 2015

Living in a brave new world where “printing” is not just “printing”

Online marketplaces – for example, eBay – and Internet storefronts such as Amazon certainly have been disruptive in a good way. They have all enabled disintermediation between customers and products, changing the state of retail and commerce forever.

During the early days of the Internet, I had the great fortune of being on an e-commerce panel with Jeff Bezos and Meg Whitman when they led Amazon and eBay, respectively. What we called early e-commerce during that event has truly become the “new normal.” Very rarely does a day go by when I don’t use either Amazon, eBay, or PayPal to make personal purchases and make business transactions.

More recently, I noticed a new trend emerging when I bought a new scale model for my train collection: the combination of an always-on marketplace and on-demand 3D printing of products. In the past, production of plastic models entailed building a model of the prototype, developing a mold, and then casting the model in a production run. This required significant lead time, production costs, and a lot size for production. If there were too few orders, the product would likely never be made. And if the model was an odd prototype with a limited market, you would be out of luck, too.

But for those of us not willing to take no for an answer, we had two alternatives:

  1. Scratch-building your own model, which is very time-intensive and clearly not for everyone.
  2. Purchasing brass models built overseas with small production runs and accompanied by an extremely high price tag.

Then I saw something really cool on eBay – an oddball N=1 model of a one-of-a-kind Amtrak executive car based on the Amfleet passenger fleet. What was more interesting was the description of how this model is made. No molds. No casting. Just a 3D printing process that generates a resin plastic model from a CAD drawing. Plus, it is shipped the same day it is printed. Wow! What a great example of 3D printing for a not-so-large mainstream market.

But that can’t be all that 3D printing can do. What else could this technology support? Anything we can imagine.

3D printing: Building a bridge between what’s available and what we want

Most of us have seen a new addition at some of our favorite restaurants, called Coca-Cola Freestyle. This dispenser offers 100+ different choices of soda.  Literally at your fingertips, there is every Coca-Cola brand, options for caffeine/no caffeine, and different flavors of the same brand – just imagine, you can have a Coke Zero “classic” infused with lime and caffeine!

So after I played around with my selections and received my beverage of choice during a shopping trip in town, I decided to quell my curiosity of the inner workings of this marvel. Luckily, the manager obliged my request to open the machine, get an up-close look, and take some pictures.Connected Soda Machine

According to the manager, the machine itself costs approximately US$8,000, representing a relatively high fixed cost expense. Coca-Cola Freestyle uses a series of cartridges, one for each soda brand and flavor. To maintain the machine, the cartridges are lower-priced, not that far from the price point of a higher-end LaserJet cartridge. The consumer selects the brand and options from an LDC display, with the available options of diet or regular, caffeinated or decaffeinated, and a flavor that may be different from the base brand.

In a fashion that would make my Yale economics professor proud, I performed a thumbnail calculation of the permutations and verified over 100 possible combinations. Cool!

No longer are individual brands stocked, but their components and the cartridges are. All the while, the machine simplifies the process of delivering exactly what the customer wants. But most important, a product of a great SAP customer who truly sees the future of the 3rd Platform as a competitive advantage.

However, I view this new innovation as 3D printing at work. Instead of printing the “recipe” from a book of choices, Coca-Cola Freestyle custom mixes ingredients in real time and produces a product on demand. In fact, this is just the start, in my opinion. Fast-food vendors now have the technology for customized French fries that could be printed on demand and cooked for the customer. And forget choosing from 31 flavors of ice cream – what about 31,000?  You name it, and just imagine the possibilities!

Big Data, analytics, and 3D printing: A win-win for customers and businesses

In a world increasingly run by the Internet of Things, a soda machine produces data on consumption, transaction-level brand market share, and event-level ordering points for the cartridges in an automated real-time supply chain process. And then it hits me – that’s exactly the world SAP is supporting with technology innovations such as SAP S/4HANA. One full of digital transformation, simplification, and promise for better things.

Want more on how technology is creating an increasingly customized consumer marketplace? See The 5 Most Important Tools of the Make for Me Future.

This originally appeared on Digitalist Magazine

Innovation Adoption And Management: In Search Of A Road Map

  • Topic: Innovation
  • |
  • Partner: SAP Service and Support
Fred Isbell, Senior Director - Service & Support Marketing, SAP
Fred Isbell
Senior Director - Service & Support Marketing
SAP

SAPThank you to SAP for underwriting CXOTALK.

More than 30 years ago, I published my undergraduate thesis “Research and Development in the UK and Japan: The Case of the Semiconductor Industry.” While studying economics and political science at Yale, I was very interested in how public policy, economics, and world politics impacted innovation in the high-tech industry, specifically the then-emerging market for semiconductors.  Fortunately, I received an A for my research and graduated, participated in an extended consulting internship, obtained my MBA at Duke University’s Fuqua School of Business, and enjoyed a summer with the tech giant IBM.

Back then, I knew I had found my calling in high-tech. After a 3-year stint in consulting and analytics, I joined Digital Equipment Corporation (DEC) in the winter of 1988, one of 25,000 new employees hired by the #2 computer company at that time.  I wrote about that experience in my last blog, Innovation Adoption: What You Need To Know, and discussed how DEC failed to cross the chasm and reach broader, mainstream markets with higher (and profitable) market share.  In this blog, I will introduce and discuss the elements of a successful innovation road map.

What is a road map?

There are many thought leaders and pioneers around the topic of innovation adoption and management.  However, there is one who has caught my attention: Mark Dodgson.

Australian-born academic Dodgson’s research on innovation management has had a big impact around the world. He believes that we need to thoroughly understand the innovation process and the way it changes and evolves. Plus, he details how collaboration and technology plays a significant role in the innovation journey.

Although his work primarily focuses on the emerging biotech industry, he does provide insights that are just as important and applicable to the technological and organization aspects of innovation. Personally, I was struck at the parallel between my experiences more than 20 years ago and where we are now with the introduction of innovation technologies (also known as 3rd platform innovation accelerators) bringing about what IDC calls the 3rd platform era.

Most important, Dodgson identified a process for innovation – “thinking, playing, and doing.” Sounds like a road map to me!

The rapid innovation cycle

Most business leaders want to accelerate innovation and achieve rapid innovation. And for that to happen, organizations need to be agile at a high rate of speed, like a skilled hockey player flying down the ice for a chance to shoot at the goal and score. To achieve this fit, there is an endless amount of articles, ideas, and images of road maps to choose from. However, for me, the Rapid Innovation Cycle fits the bill.

Developed by the principals from BMGI, the Rapid Innovation Cycle is a multiphase project framework that includes  series of workshops and project work.  It consists of four phases:

Innovation Roadmap

Source: Elements of a Successful Innovation Road Map

  • Define and scope the innovation opportunity: The goal is to get into the customers’ shoes and determine the innovation opportunity from an outside-in perspective. This is what Clayton Christiansen, the renowned professor from Harvard Business School, calls “the job to be done” (JTBD). Here, we define outcome expectations (OEs) – the things that matter most when solving the problem.

  • Discover new ideas: In this phase, we engage in ideation and explore various ideas that can possibly solve the problem. Yes, this is brainstorming and it produces a large number of new and potential concepts.  Although this is hard, tiring work that can go on for an extended time period, this approach gives us an opportunity to capture, review, and research ideas, as required.
  • Develop design concepts for experimentation: Here, we build on the ideas from the previous phase and come up with concepts that can take us to the next level. A detailed description of a product or service and a baseline can help produce a rapid prototype that showcases the potential of a concept.
  • Demonstrate the new innovation through piloting and prototyping: This phase is all about turning the design concept into a prototype and collecting feedback and data.  It can be simulated, but the goal is to obtain intelligence quickly.  We then collect feedback from the team and key stakeholders. If it’s viable, we can take the innovation to a more robust development or execution phase.

At the end of the day, rapid innovation is what it’s all about – generate ideas, determine quickly their viability, and develop products and services that people actually want. Wow! For me, this is a déjà vu experience that harkens back to my time at DEC, a company that developed amazing products and technologies often years before there was any customer need or demand!

OK – enough with the theory of innovation.  In part three, we are thrilled to feature an interview with SAP executive and innovation expert Michel Sérié, who will introduce the Innovation Management Framework (IMF) and discuss a variety of approaches to bring successful innovation to fruition through leadership design thinking and innovation management approaches.

Want a head start?  Click here to read Michele’s recent blog on the topic.

For more forward-focused business strategies, see The Future Of Work: Understand, Prepare, And Innovate.

This originally appeared on Digitalist Magazine

Innovation Adoption: What You Need To Know

  • Topic: Innovation
  • |
  • Partner: SAP Service and Support
Fred Isbell, Senior Director - Service & Support Marketing, SAP
Fred Isbell
Senior Director - Service & Support Marketing
SAP

SAPThank you to SAP for underwriting CXOTALK.

My head has been spinning since SAP and more than 17,000 of its customers and partners descended on Orlando, FL, for the annual SAPPHIRE NOW and ASUG conferences. As noted in my previous blog “Following the Red Thread of Innovation at SAPPHIRE NOW,” insightful external thought leaders, SAP experts, and customer speakers knocked the ball out of the park this year. They all agreed: Innovation is important, and we must adopt and ultimately “consume” the new technology and solutions it brings.

What about innovation adoption? What are the segments of a market and customers we must address to drive this?

What is innovation adoption?

To define a complex concept like “innovation adoption,” we must first look at standard definitions and build a consensus-based description that “works” for our specific view of the market. There’s certainly no shortage of academic and business research to work from – namely, the Everett Rogers model that uses a normal distribution to segment the market, Geoffrey Moore’s seminal works “Crossing the Chasm” and “Inside the Tornado” that describes specific tactics.

Personally, I liked the definition from dictionary.com:

Innovation adoption:

1. A model that classifies adopters of innovations based on their level of readiness to accept new ideas. Innovative adoption characteristics are assigned to groups to show that all innovations go through a predictable process before becoming widely adopted.

2. The groups consist of early adopters, early majority, late majority, and laggards

Who are these groups of innovation adopters, and what differentiates them?

Figure 1: Adoption lifecycle model

Like the beginning of a hockey game – “Here’s the starting lineup of the innovation adoption team!”

Innovators:

  • The true geeks who buy on the promise of technology and often regarded as true visionaries
  • The first to try new ideas and things
  • Risk takers who skillfully leverage multiple information sources to make their decision
  • A relatively small segment in number, but much larger in terms of influence

Early adopters:

  • Early pioneers who are willing to take a hit and also regarded as visionaries who rely on “gut feel” and experience.
  • Larger than Innovators in size and critical to the success of innovations

Early majority:

  • The more mainstream segment of the market – and more than twice the size of the first two groups
  • A group that likes new things and innovations, but prefer to wait and see if an innovation is “successful” before adopting it themselves
  • Followers of innovators and early adopters for ideas, influence, and opinions

Late majority:

  • Same size as the early majority
  • People who only adopt innovations when forced to do so
  • A segment that is harder to persuade and influence, especially through advertising and online information
  • High regard for the advice and influence of friends and colleagues

Laggards:

  • Same size as the innovators and early adopters, but with an entirely different mindset
  • The last group to adopt an innovation – kicking and screaming
  • Naysayers of any change, only embracing and adopting an innovation when absolutely forced to do so
  • Strong reliance on the advice and influence of friends and colleagues – and still difficult to convince them even with positive feedback

It’s all about speed and the S-curve of adoption

Throughout my career, I have been fascinated with this side of business and technology – especially the increasing speed in which innovations are adopted. The adoption of new innovations is defined by an S-curve. It’s upward sloping, reaches a “knee in the curve,” and then begins a downward slope until we reach the run-rate and eventual full adoption. We marry the S-curve with the model of adoption segmentation for one unified view of which groups are adopting an innovation and how long it takes to reach full-scale adoption.

Innovation S Curve

Figure 2: Adoption lifecycle model with S-curve adoption

Rogers calls the point at which the curve begins to slow the point of “critical mass.” The key is getting the numbers there, whether they are users, product volume, among others. If we fail to “cross the chasm” (as coined by Geoffrey Moore) to reach this critical mass, we are doomed to a sub-optimal market and much smaller market share, by definition.

I saw this firsthand in the early part of my now 30-year technology career while at Digital Equipment Corporation. Even though the company was led by a brilliant visionary and known for leading-edge technology for years, it could never make that all-important jump to “cross the chasm” and reach a larger, more mainstream, and more profitable market. As a result, the company had relatively low market share despite having some of the best and leading-edge technology on the planet.

In part 2 of this blog series, I will discuss the concept of innovation road maps and illustrate how we can offer a “managed process” to help our customers make this transition when bringing new innovations to market.

For more insight on entering new markets, see How to Adapt Your Products to Emerging Markets.

This originally appeared on Digitalist Magazine

RPM Accelerates the Front Office

  • Topic: Innovation
Bruce Cleveland, General Partner, InterWest
Bruce Cleveland
General Partner
InterWest

Almost a year ago, I posted a blog titled “The Case for ‘Revenue Performance Management’ in the Front Office” where I introduced this new category of performance management targeted to the unique needs of the Front Office, line of business users who control the top-line for a company.

I believe there is tremendous opportunity in delivering Back Office-like performance management techniques to the Front office to enable better business decisions by the lines of business, so I reached out to SignalDemand, one of the companies I mentioned in my last post, to test whether the framework I had developed has mapped to their experience on the ground.  I also wanted to verify what type of business results companies were seeing when they deployed advanced mathematical modeling and statistical analysis to predict the future, and make rigorous decisions based on those predictions-versus the traditional approaches of analyzing history, or worse, relying only on qualitative assessments.

SignalDemand in turn shared one of their case studies from Cargill Meat Solutions, a leading processor and distributor or fresh and prepared beef, pork and turkey with more than $15B in revenue and over 35,000 employees.

In my previous post, I noted six primary areas of difference between Enterprise Performance Management and Revenue Performance Management.  These differences both define the significance of the opportunity in the Front Office as well as why this large market opportunity is going to be driven by SaaS-based solutions that provide real-time answers, targeted to the needs of the line of business.

Why SaaS?  It’s Not Just a Deployment Approach

In the Front Office, Line of Business managers are in charge but in many cases they lack access to the technical personnel and expertise required to design, deliver and manage the applications they need to run their organizations.  Instead, you have the teams that control the top-line of the business using arcane tools such as spreadsheets and email to manage complex processes that lead to critical business decisions required to run their organizations.

Nowhere is this pain felt more acutely then around the problem of ‘price’.  According to SignalDemand, this was the situation Cargill Meat Solutions (CMS) found themselves in, recognizing that their traditional means of pricing — a complex process that involves pricing experts working with internally developed tools — while serving them well in past, would not keep them competitive in the future.  CMS recognized the value that could be achieved by applying predictive analytics and optimization to price back in 1999, but quickly realized that without the capability to translate price changes into their resulting revenue and supply implications, the usefulness of the technology was limited.

It wasn’t until SignalDemand brought the right mathematical modeling expertise, along with a SaaS based solution that CMS was able to get the business answers they needed.  In addition to requiring targeted answers to business problems, CMS needed them to be delivered without a protracted IT project, the kind of solution that only SaaS based applications can provide.

The Dynamic Nature of the Front Office

In the Back Office, every effort is made to stabilize business processes, but in the Front Office, change is the norm.  The Front Office of a company must be able to quickly adapt and adjust to change.  CMS faced a situation where more than 150,000 pricing decisions were being made each week – this in an environment where they were surrounded on both the buy- and sell-side with changing market conditions.  And the impact of price in this environment wasn’t isolated to sales.

There was the reality that a single production input (an animal carcass) can yield thousands different products (cuts of beef), and every carcass harvested has the same parts-so you had better use price to make sure you’re selling the various parts at the same rate, or you could end up with a lot of inventory sitting around for one part of the animal while you’re going gangbusters in another (the adage in the industry is “sell it or smell it”). In this type of environment — with significant volatility and complexity — an environment extremely common in commodity based value chains, it is nearly impossible for human intuition and spreadsheets to truly optimize an organization’s business results.

Real-Time Answers Critical to Front-Office Success

The Enterprise Performance Management tools provided by application leaders are often designed around the batch processing of data, where response time is important, but if a report takes a while to run the impact is an inconvenience rather than catastrophic to the business.  Not so with Revenue Performance Management and the needs of the Front-Office.

CMS needs to be able to price-product in real-time as highlighted by Mark Hoekstra, Pricing Manager, Cargill Pork Retail, “SignalDemand has helped us to speed up our pricing process, allowing us to respond to our customers’ requests more quickly and ultimately to win more business.”  The Front Office needs solutions like those delivered to Cargill which support decisions at the speed of business, with capabilities such as rapid scenario analysis, enabling a sales rep to understand the immediate price and margin impact of changes in input costs or sold position.

Revenue Centers — More Difficult, BUT More Opportunity

The reality is that it is far easier to analyze back office processes and to ensure that all costs are contained.  The Front Office is more difficult because of the dynamic nature of their decisions and processes, which calls for real-time information — I’ll discuss this in more detail later.  Better support for the Front Office however can have a much larger impact on a company’s bottom line as evidenced by the often quoted McKinsey study which showed that a one percent improvement in price increases operating profit by eleven percent, whereas decreasing COGS by the same one percent results in only a seven percent impact on operating profit.  While the privately held company would not share financial results, they “clearly were substantial” as quoted from an AMR case study prepared on the SignalDemand deployment at Cargill. Below is a graph of information they did share with AMR, showing two measures of CMS price volatility, both before and after implementing SignalDemand.

The Executive Champion: A Critical Role in Front Office Success

In the Back Office, it is likely you must use an application to accomplish many, if not all, aspects of your job while in the Front Office; just the opposite is true — other than a few applications (e.g. email), you may only interact occasionally with an application to accomplish your objectives.   When asked how they managed the “change management” elements of the project, project sponsor, Herb Meischen, noted that it was the president of Cargill Meat Solutions who sponsored the project and that this senior sponsorship helped facilitate the product’s rapid adoption.  User adoption can be a challenge when organizations are accustomed to using “gut feel” and intuition rather than mathematical models. Meishen points to the fact that Cargill initially ran the technology in parallel with what was then a spreadsheet-based method to determine price.  From AMR’s case study on Cargill, “Each day, the SignalDemand technology calculated pricing options and the best mix, while the team used existing processes to calculate pricing options manually. When team members found out the technology could more accurately price a complex scenario in minutes versus the manual process of hours or days, they quickly adopted the tool.”

Applying Predictive Analytics to the Front Office: Turning Subjective Data into Objective Data

By far the largest difference between the Back Office and Front Office is that with relatively few exceptions, the Back Office is driven by objective data and decisions can be made at a relatively slower rate.  In contrast, the Front Office is largely driven by subjective data and the decisions must be made much more rapidly to respond to immediate customer and/or market demands.  So what if there were technologies available that enabled the Front Office to convert what has been primarily subjective data into objective data?  What if the Front Office was able to apply the same rigor to its available data, but in real-time so they could make business decisions?

Cargill Meat Solutions implemented SignalDemand’s solutions (which use historical pricing, USDA market activity, sold positions, inventory and supply constraints) and developed detailed pricing and demand elasticity models for each of the time-horizons in which Cargill Meat Solutions sells its products: spot, mid-, and long-term.  Whereas historically this information was scattered through a series of applications and spreadsheets which would need to be manually reviewed, SignalDemand pulls this complex data set together, running it through their models, translating complexity into simple answers — what is the right price, for this product, in this time frame, for this customer? As stated by Bill Chandler, Beef Pricing Manager, Cargill Beef, “It’s given us an unbiased tool as we operate in a very emotional environment to be able to make a good decision.”

The Inexorable Transformation of the Front Offce

With SignalDemand and Cargill Meat Solutions as a prima facie example we now have empirical evidence that demonstrates Revenue Performance Management solutions are beginning to enter the Front Office and make a significant positive financial impact.

While still early, I believe that the compelling economics of  RPM solutions such as SignalDemand, Marketo, Cloud9 Analytics, and others will dramatically change the way in which companies manage their Front Office.

This originally appeared on Bruce Cleveland's Rolling Thunder

Innovation — the Intersection of Fear of Status Quo, Opportunity and Talent

  • Topic: Innovation
Bruce Cleveland, General Partner, InterWest
Bruce Cleveland
General Partner
InterWest

At InterWest, I recently had the pleasure of hosting an executive team from a 100 year old insurance company. They were visiting Silicon Valley in order to meet with various “innovative” companies in order to learn how they might themselves become more innovative.

The format of the meeting was a discussion between myself and eight executives. They wanted to know how we, InterWest, identified innovative ideas and/or sponsored innovation inside our portfolio companies.

It was easy to answer the latter — we don’t.  We are investors in ideas we believe are innovative but we are not the creators of that innovation — at least not typically. It is the entrepreneur and the team that are the innovators.

The first part of the question was how we identify innovation. The answer to that is actually fairly straightforward; we see a lot of different technology and business models. As a result, after a little due diligence, we can usually determine if something is unique or different.

The more difficult question we, as a firm that makes early stage investments, have to address is “so what?”. The fact it is innovative isn’t sufficient for us to make an investment. We need to convince ourselves that the innovation is relevant  – will companies or people use it —and is there a large and addressable market for it.

The next question I was asked was how I thought innovation occurs in existing companies? I responded by saying I felt most innovation in large companies occurs at the “intersection of fear of status quo, opportunity and talent.”

Opportunity = a person or a team of people identifies something they believe a business or consumer needs.

Talent = the person or team has experience, expertise, drive, etc. to pursue the opportunity because they want to make money and/or make a difference.

Fear of Status Quo = the person or team is fearful that they will lose something if they don’t change what they are doing.

When these three elements come together, innovation can occur.

The first two elements can exist in abundance in large organizations. However, what is typically missing is “fear of status quo”.  The lack of fear of status quo— are we going to survive if we fail to change- is fundamentally why I believe large organizations typically have a challenging time with innovation.

In fact, it is typically the “fear of doing something new and making a mistake” that paralyzes most large companies from making significant changes.

Big changes inside existing companies and organizations can lead to loss of power, loss of jobs, loss of financial stability. For these reasons, I believe as companies get larger, more and more infrastructure is built to support the status quo v tearing it down; large companies that were once incredibly innovative become less and less innovative from within and begin to look externally to acquire “proven” innovation.

So, I said to the group of insurance executives in front of me, if you really want to inspire innovation, I believe the best thing you could do is as follows:

  1. Create a separate entity and capitalize it
  2. If you are worried about carrying the company on your books due to upfront losses, use outside capital to minimize ownership
  3. Create a call option with a first right of refusal to purchase that enables you to buy the company at some point in time at some multiple of revenue, EBITDA, etc.
  4. Take a few people with talent and drive who have suggested some creative ideas and/products and place them into the new entity and give them equity incentives.
  5. Let fear of failure and the promise of reward motivate the new entity’s executive team.
  6. Let the new entity run unencumbered by any of the policies, politics, or structure of the larger company.

We finished the meeting and I thought to myself, while I really believe in what I said, I didn’t have a lot of confidence this team of executives — nor any team of executives from a successful company – would really take action against it.

From my experience, the power of “the status quo” is simply far too great. Even when a company is under duress, seldom will it do something that may jeopardize the status quo. When a company is doing well or even just skimming along, it is virtually impossible to introduce significant changes even if it is to the benefit of the company in the mid-long term.

So, this is one of the reasons why I continue to have tremendous confidence in start ups. Even when large companies have the capability of creating innovation that could challenge a start up, they seldom do because of status quo. And, if you combine that technical innovation with business model innovation, an incumbent company has little chance of competing with it.

So-here’s praise for the “status quo”-it will continue to be the kryptonite of large incumbents and the defensible shield of start ups which is what we as venture capitalists count on when we invest.

This originally appeared on Bruce Cleveland's Rolling Thunder

The Rise of RevTech and EmpTech

  • Topic: Innovation
Bruce Cleveland, General Partner, InterWest
Bruce Cleveland
General Partner
InterWest

My investment partner at InterWest, Doug Pepper, and I co-authored an article on TechCrunch this weekend titled  “A New Revolution Modernizes The Revenue Supply Chain“.

In it, we discuss a new class of enterprise software applications that we see emerging in the Front Office and Back Office. These new applications are not replacing first generation applications per se (e.g. CRM, ERP, HCM).

Instead, they are using the transaction data generated by first generation applications  to provide real-time business insights at “the moment of value” — when a decision needs to be made by an individual, manager or executive.

They are also doing something very interesting — they are embedding collaboration and workflow into the fabric of the applications and leveraging mobile for anywhere, anytime computing across the enterprise.

These new applications, we believe, may be the foundation of a step-function increase in global employee and company productivity.

We have given these data-driven enterprise applications the labels of “RevTech” (Front Office) and “EmpTech” (Back Office). They are already helping companies to optimize both their revenue supply chains and talent supply chains.

I encourage you to read the article and provide your comments. Always interested in your feedback.

This originally appeared on Bruce Cleveland's Rolling Thunder

CxOTalk summary: SAP Chief Marketing Officer Jonathan Becher on Influencer Marketing

  • Topic: Innovation
Jonathan Becher, Chief Digital Officer, SAP
Jonathan Becher
Chief Digital Officer
SAP

More influencers participate in recommending what to buy, so B2B selling is moving beyond the relationship between one lead decision maker and a sales person. In addition, more individuals are buying at the LOB level, even within IT. In this business climate, Jonathan Becher says the challenge is understanding who are the individuals within customer and partner companies that are truly influential.

You want to avoid the distractions of the echo chamber or the wannabe influencers.