Archive for the ‘Innovation’ Category

Innovation: Client focus to create economic value

Saturday, June 20th, 2009

Overview
Moving innovation to the centre in hotly competitive and increasingly global business environments; companies are examining every aspect of their operations for opportunities to improve performance and to gain competitive advantage. No major business process or function has escaped executives’ scrutiny—from the supply chain, to construction methods, to building CAPEX/OPEX, finance control, to customer relationship management.

Innovation is increasingly a vital element across these and other efforts. In fact, it has become the pillar of many organizations’ overall growth strategies. Companies that are consistently rewarded in the market and weather the storms of economic and leadership changes are superior and become successful business and valuable market brands over time.

Innovation

Innovation is about social applications of inventions, not about the inventions themselves.

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Engineers, scientists and mathematicians sometimes don’t get this. It’s not part of their culture. We see time and again, engineering-driven corporate cultures failing because they don’t address the social needs of their customers and they don’t address the social ramifications of invention. Client focus in others words.

Motorola, for example, has working touch-screen cell phones in China years before the iPhone (works great with complex Chinese writing system) but wouldn’t bring it to the US because the engineering-dominant company leaders focussed on technology and features, not use.

True “innovation” or “transformation” comes from cooperation between disciplines. Product/Service development is a spectrum. If you ignore research, design, OR engineering, you’re putting yourself at a disadvantage.

All good working definitions of innovation pair ideas with action, the spark with the fire. Innovators don’t just have their heads in the clouds. They also have their feet on the ground. The company 3M, one of the first to fully embrace innovation as the essence of its corporate brand, defines it as “new ideas – plus action or implementation – which result in an improvement, a gain, or a profit.” It is not enough to just have a good idea. Only when you act, when you implement, do you truly innovate. Ideas. Action. Implementation. Gain. Profit.

All good words, of course, but there’s still one piece left out. People. That’s why I prefer the InnovationNetwork consultancy’s definition: “People implementing new ideas that create value.”

Innovation is definitely not self-starting or self-perpetuating. People make it happen through their imagination, willpower, and perseverance. And whether you are a team member, a group leader, or an executive, your only real path to innovation is through people. You can’t really do it alone.

“Innovation is all about the roles people can play, the hats they can put on.”

Innovation is all about people. It is about the roles people can play, the hats they can put on, the persona’s they can adopt. It is not just about the luminaries of innovation like Thomas Edison, or celebrity CEOs like Steve Jobs and Jeff Immelt. It is about the unsung heroes who work on the front lines of entrepreneurship in action, the countless people and teams who make innovation happen day in and day out.

Individuals and organizations need to constantly gather new sources of information in order to expand their knowledge and grow. Driven by the idea that no matter how successful a company currently is, no one can afford to be complacent. The world is changing at an accelerated pace, and today’s great idea may be tomorrow’s anachronism. People who absorb external knowledge are humble enough to question their own worldview, and in doing so, they remain open to new insights every day.

“Opportunities for collaborative research between industry members exist wherever there are common technical or market objectives. Collaborative market research or R&D projects are a very cost-effective route for developing market-driven technology solutions. Collaborations can be one-on-one or can be multi-party with several organizations pooling resources to share costs and risks. In collaborative research projects, Davmark works to manage the project between multiple partners. Any organisation undertaken this role, is best to also acts as an agnostic platform; to ensure that realistic and neutral research results are achieved.”

The barriers to innovation

Every business discipline, whether it is engineers or marketers has a spectrum of personalities from conservative to those who are willing to try anything at least once. The vast majority of scientists and engineers are not inventors or even innovators. They make processes more efficient or run cost analyses. They maintain. They supervise. That’s an entirely different business from coming up with new ideas. Once the idea has been implemented, by the early adopters, they will follow on behind slowly and tell the world of the new idea they have discovered.

The next barrier is the financial and marketing functions that are can be unwilling to invest in a new product or service, unless they had a high degree of assurance that it would enhance sales.

Knowledge leverage

Knowledge leverage goes the next step. Innovation is not the result of a single creative spark from single genius – it is usually the culmination of many technical breakthroughs and series of insights that are somehow brought together through group intelligence. This can be easy to embrace – but a set of initial conditions that allow for authenticity to flourish, an environment that accepts and builds on weakly connected ideas, and a group that is both challenged and empowered by the task at hand will yield innovation in almost any problem space – regardless of the disciplines on the team. This form of leverage builds scalable relationships across large numbers of companies that help to accelerate the development of all participants. When done right, it creates powerful opportunities, rapidly increasing the value delivered to the marketplace and allowing all participants to reap increasing rewards.

Innovation should be pursued in rapid increments. Rather than reimagining from the ground up a fundamentally different way of organizing activities across thousands of participants, companies need to find pragmatic ways to move from where they are today in ways that generate near-term financial returns. The well-known case of Procter & Gamble’s (PG) “Connect and Develop” program illustrates some of the opportunities that can be reaped by building broader networks to source promising product ideas. Nearly 50% of P&G’s products today have benefited from some form of external collaboration. Other companies might follow this example to position themselves to pursue even more powerful forms of capability and learning leverage, especially once the economy recovers.

The bottom line is that innovation should not be an afterthought in times of financial and economic pressure. Innovation can be reconceived to provide powerful economic (rather than financial) leverage at a time when there is an imperative to do more with less. Simply cutting headcount or programs while demanding that the remaining employees do more may work for a while, but it is a diminishing-returns game. The challenge, and opportunity, is to find ways to generate increasing returns. The insights generated from these efforts will serve companies well not only during the downturn, but in more prosperous times as well. In fact, the companies that harness this potential will develop a new edge, positioning themselves as long-term winners.

History shows that technical innovation creates wealth.

Route to market:
It’s really quite simple. Solutions (technology, products and services) flow one way and money flows the opposite direction. The key word here is flow. Where there is no flow, there is no progress, no business, no solution, no profit, and no better buildings—just a lot of frustrations. As an industry, we have to focus on getting the flow going, and then increase the flow into a rapid torrent.

The challenge here is that everyone in the route to market has an agenda, normally a commercial agenda to be successful in their business—not unreasonable at all. I learned in high-school why rivers bend and curve; this is strange behaviour for rivers as water wants to take the shortest route to its destination (the sea), and curves provide anything but the shortest route. I learned that these rivers typically started off straight until something got in the way of the flow, typically on one side of the river (a tree falls, a mud-slide or some man/animal-made blockage).

The mission of the river is to meet with the sea, and it will find a way around the blockage in this pursuit no matter what. So the river focuses its efforts on the other side and with years of flow will start to create a curve in its path. As the blockage gets rooted, it also grows, and as it grows, the river focuses even more on the other side. Before long, we have a curve in the river.

The point of this is that the flow of the route to market is fundamental and the market will navigate away from any agendas that do not support the flow. Players in the route to market need to understand the purpose of the flow, the commitment and inevitability of the flow, and ensure that their agendas are in sync with the flow and not blocking the flow. Any agendas not in line with the flow will eventually be bypassed.

I see a big dam in the building systems route to market and a bunch of blockages.

So, what are we to do in the route to market?
The first thing to do—a most fundamental action—is to accept that things are going to be different. If you cannot accept this it will be difficult to participate in tomorrow’s smart building; you will be a blockage to the flow and it will go around you however big you are. It may take a while for the market to circumnavigate a deeply rooted enterprise, but it will. Acceptance is a wonderfully liberating thing because once you realize that sticking to the status quo is as dangerous as assuming something different, you can channel your efforts toward increasing the market.

Think of this as creating a new tributary to the river, to increase the flow and not get in its way. I see a number of channel companies (contractors, integrators and consultants) that have done this, have accepted that they need to do things differently, and in all cases, they are very busy with a very profitable flow of business.

Once you accept change, it becomes critical to educate. I’m talking about educating yourself, your team, your suppliers, and of course your customers. This is probably the most difficult task in this process. As in most cases education is unlikely to be a natural thing you want to do. You would typically want to sell, engineer, specify, project manage, or do any of the other myriad activities that a contractor, integrator or consultant does on a daily basis. Unless you can train those around you that the old, deep-rooted behaviour is not the way to go, your acceptance has little impact on the market and your business.

The successful companies I know of that have accepted this change and who are very successful in business spend a significant amount of time educating. They immerse themselves and their organization in a new view of buildings, they develop new ways to sell, they use new products and technologies, and they allocate a significant amount of time and budget to actively participate in industry events and organizations promoting intelligent buildings. This is an investment that these successful organizations justify easily; they see the results in their growth and profitability.

Once you have accepted change and made a commitment to a new way of doing things, you have to do your number one job: provide some form of value or solution to your customers. But, beware. If you have come this far you have made an enormous commitment to a new world, and you have to understand that the way you provide your solution now is also very different. Not only are the technologies, products and tools different, but your customers should also be different (If they are not, you are doing something wrong.).

So what is the fundamental difference here?
How does one provide a value in the new world?
The answer to this lies in with the building owner.

Building owners:
First, the term building owner is a misnomer. Although the building owner may be a single legal entity, the building owner that the buildings industry works with is rarely a single entity. There are in fact numerous individuals that exist in that group we commonly call the owner. In the new world of intelligent buildings, the number of individuals you will need to deal with increases dramatically.

As a vendor of a single system (HVAC, lighting, or even a smaller component such as a non-integrated product) you would typically be talking with one or two individuals who have a need for that particular service or product. This could be an energy manager, a security manager or a facility person. In the old world, the needs of the owner are broken up into smaller needs that are typically satisfied separately, with purchase responsibility handed down accordingly.

If you, for example, are selling sensors, you would be dealing with the engineer who has the responsibility of purchasing sensors. The engineer would have a specification for the sensors required, a budget, and some other parameters on how they will eventually select a sensor supplier. This business is extremely cost conscious which is understandable since the budget is probably a significant buying motivation for that engineer. To make the sale, you have to convince the engineer your sensor is better (performance, quality, etc.) and at a cost that is acceptable (better than alternatives source for it). Service and relationship may also come into the equation.

Of course the above example is simplistic, and in most cases we are talking about projects that could in fact go into millions of pounds, but the fundamental goals of non-integrated building purchases are similar:

a) they are based on achieving some specific technical and functional need, and

b) the cost price is acceptable. This purchase is typically seen as a grudge purchase, and this is a cost that needs to be reduced at all costs (pun intended).

Competition can be fierce since several vendors can provide the same solution and companies often find it easy to justify reducing margins to get or retain that valuable customer.

The building as an asset

Many astute organizations that own or use buildings (pretty much all organizations) are now beginning to understand that their buildings and facilities are critical elements to their business. Many organizations are now being squeezed by their shareholders to perform better; the buzzword of this decade (and possible century) is efficiency. We see this in enterprise-based systems that manage personnel, supply chain and customer relationship management. These systems basically take masses of data and organize it into usable information for managers, directors, VP, presidents and the CXO staff to make business decisions that will allow all of their resources to achieve more with less.

Buildings are the second most significant expense in most organizations’ overheads, second only to the cost of people. It is not going to take long for most organizations to realize that they can look at their buildings as an asset that can actually contribute to the success of their organization. To do this they need data and information systems that will measure their building’s contribution against their objectives and put into place building control systems that will contribute to these objectives. This is the fundamental value of intelligent buildings—one that contributes to the owner’s or occupants’ objectives, whatever they may be.

You will notice two things here. Firstly, such a view of buildings requires IT-based systems, systems that these organizations already have in place for their other efficiency drives (ERP, CRM, Supply Chain, etc.). Secondly, you will notice that in this view the concern is not the cost, sensor performance, some component of the building, or even the specific system in the building such as HVAC, security or lighting.

The problem statement is simply how the building can contribute to the organizational objectives. I was taught a long time ago about the difference between cost and asset. Your home electricity bill is a cost. You will do all you can to reduce this cost. You may change electricity suppliers to do this, or you may install a new water heater to reduce this cost, but the only way to go is down as far as cost and the amount of cost reduction—although initially could be significant—very quickly gets smaller and smaller. Imagine if your bills are £1,000 a year; once you reduce this by a huge (and improbable) 50%, it is unlikely that you can achieve this level of reduction again, and even if you can save 100% of the cost, the value of this savings is finite.

Your home on the other hand is an asset that you want to grow. While you would want your mortgage payments to be as low as possible, you would invest money into your home to improve it. You would remodel it, put on a new roof, install a pool, or build an extension because such investment in your home would be worth more to you as an occupier or to someone else should you wish to dispose of it. Here the increase in value is not finite. You can (theoretically) invest £x every year to increase your home size by some relevant size to increase your home’s value by £2x, and you can do this until you run out of land, and then you could invest in buying extra land. The point is that increasing the value of assets is not finite.

To many building owners, the costs of their buildings and facilities have in the past been essentially a cost to be reduced by whatever means possible. The buying behaviour of the past is clearly an indication of this. As more and more organizations that own or occupy buildings are starting to realize, their facilities are a becoming potential goldmine to increase efficiencies, and in turn to improve their bottom line. Realizing that IT can be the vehicle that achieves this liberation of value, owners are starting to look at their facilities as asset, and with all assets, and there is a desire to increase them even if it means spending money.

Selling the new Solution
It is becoming clearer that the most significant value proposition of integrated and intelligent buildings is not in the technology, not in the increased flexibility of suppliers, not even in the reduction in staffing to manage disparate systems. These are all enablers for the real value to come. The most significant value is in how organizations that own and occupy buildings can now view buildings: as a holistic entity that becomes an integral component of their enterprise system; as an asset they can monitor and control in real time; and by business terms, ways to measure whether the facility is contributing or detracting from their business objectives – and take action accordingly.

The successful and very valuable service you can provide building owners is in realizing this potential in their facilities.

Organizing the Industry to Provide Valuable Solutions
By this point it is important that we agree upon some key assumptions before we talk about what needs to change. The most important assumption is that if you have read this far, you have accepted the fact that the buildings industry is changing and that you will need to change in order to participate in tomorrow’s world of building-IT convergence.

We can safely assume that we understand new technology is all around us, but the impact of this must not be underestimated, especially in this case because we’re not talking about an incremental change, but a whole revolution of new products, services, tools and practices. These new technologies require a completely different approach in many cases.

Another assumption we should accept is that new players, new products and new services will come into the future of buildings. Your future competition will thus not likely to be your old foes; they will not compete with you based on any constraints in which you have operated before – Beware!

I would like to talk about change from a number of angles.

Perspective
Lyrics from a Paul Simon song reverberate in my mind when talking about perspectives: “One man’s ceiling is another man’s floor”.

There are many areas where this is relevant in this discussion:

• One man’s problem is another man’s opportunity
• One man’s new technology is another man’s old technology
• One man’s core business is another man’s peripheral [uninteresting] business

One of the most significant challenges I see is bridging the gap, the gap between the buildings systems industry and the new building owner, specifically including IT/enterprise-minded folks. The significance of this gap cannot be underestimated, not if building owners are going to benefit from what many understand can be implemented today.

So, some could wonder who’s job is it to make all of this work? Is it the building systems industry or the other side—the IT industry or enterprise or owners? When I talk with many in the building systems industry, there seems to be an expectation that building controls and automation is something that IT-centric owners need to care about, and it is in their best interest to understand the challenges, technologies and benefits of all these wonderful advances we are making to operate smarter and safer buildings.

While the early adopter owners would make the real effort to understand what lies behind all of these changes and advancements, we need to accept that early adopters are a unique breed of people and that they are in the minority. Not only are early adopters different from the mass market, they are the exact opposite in terms of their behaviour, expectations, risk adverseness and general buying process. This is one of the classic challenges in marketing new technology; vendors get good traction with early adopters and simply ramp up their business expecting there to be 100 times the opportunity based on the same behaviour shown by the early adopters.

While there may be 100 times (or more) the opportunity with the mass market, we must adjust how we go about getting business from the mass market, and be sensitive to the way they make their buying decisions.

This is where perspective comes in—we have to turn things upside-down in order to speak to this new, more pragmatic customer.

The principles of doing this are easy: don’t talk about what you have to offer, instead talk to the customers about their problems. When you understand their problems, you can adjust your offering to solve them. Then communicate your offering as a way to solve their problems– NOT because of any other reason, however cool or fancy your technology offering may be.