Is Square the Bank of the Future?

Square (www.squareup.com) is a glimpse into the future of payment business models and technology and it's here now.

Banks, credit card companies *and* retailers of all sizes need to look at this very closely because it's a potential partner and a potential disruptor to today's payment systems

I believe we're seeing an evolution (if not a revolution) in mobile payments and credit card payment systems in general and here's why I think that:

Square is a payment service that allows anyone with the Square-capable device and app to accept payments anywhere.

Square takes any credit card and facilitates the transaction. At the time of the transaction, the application can act as a straight credit card processing device but it can do a lot more. According to Square's website it could let you, the retailer, know beforehand that this is a frequent customer and that 10th coffee is on the house. Later, you can see all your transactions on the web. At the time of purchase, the buyer can enter in their phone number or email address and get an SMS text or email receipt delivered to them.

But, the really fascinating component of this business model (read the fine print on the website) is that the retailer needs to set up an account at Square *and* the funds go into a Square account, to be pooled with all other Squared accounts. Notice the funds don't go to a traditional bank, at least not directly.

So Square is:

1. a potential disruptor to traditional banks because the funds aren't transferred from credit card to a bank account; and

2. a potential disruptor to customer relationship management systems because it provides high value customer relationship management and loyalty programs baked right into the service.

Last night, Square Inc sent me their latest beta tester email update...

On Tue, Apr 6, 2010 at 9:57 PM, Square wrote:

On April 3rd we opened parts of Square to the public.

https://squareup.com/features

The way we opened, with a focus on the US, iPad, cash, and items,
surprised a few. Here's why we did what we did.

We're testing the rails.

Building a beautiful, safe, and secure product that moves people's money isn't easy. We intend to get it right the first time, and we're taking the time to make certain everything works as expected. From taking a payment, settling to a bank account, giving a receipt to a payer, even to how we answer our toll-free number, every step and detail along the way must be beautiful, immediate, transparent, and friction-free.

As the iPad is new on the market and more optimized for traditional retail use, we can efficiently and securely ramp up our card processing and at the same time get Square in front of payers everywhere.

We want to learn.

We've been in a limited beta on the iPhone and iPod touch for 3 months. In those 5 months we've learned a lot. While giving everyone the ability to take card payments is exciting, we're even more excited about Square receipts and the analytics Square provides to all sellers. We didn't want them to be dependent on just one payment device however, so we implemented a way to give them for cash, too. The iPad presented an intriguing way to get the Square experience to more sellers and payers immediately and learn very quickly what people like, and what they don't.

We could've done better.

We weren't upfront with our plans to you, our current beta users and the massive list of folks who expressed interest in accepting cards with their iPhones. In the future, we'll be more thoughtful about reaching out to people when we edit our direction even slightly.

Thank you.

Thank you for your patience as we build Square in the best way we know how: with your feedback. The entire Square team is working hard to integrate your feedback and get the full Square experience to your iPad, iPhone, and Android device before the end of April. We're excited to discover all the ways you'll use it.

Jack Dorsey
Square CEO

Notice the comment: "While giving everyone the ability to take card payments is exciting, we're even more excited about Square receipts and the analytics Square provides to all sellers."

Square's innovation should excite you and scare you. Here's why:

Don't look at Square as just a payment service provider, although it is one.

Don't look at Square as just a valuable web-based customer relationship management service for retailers, although it is one.

Look at Square as the next huge transactional data aggregator, because it is one. Imagine Square's transactional database as it grows, being able to mine and sell location-based insights, tied to credit scoring from credit card data and detailed purchase data.

If Square grows quickly, it'll have an extremely valuable service but an even more valuable database of transactional data down to the micro-level purchase. Imagine then being able to sell that data to anyone who wants to target their next marketing campaign!

Finally, look at Square as your next bank, because it could be one. Once you have your funds on deposit there, why not open up a Square chequing account or Square Visa of your own... I imagine it won't be hard.

Now, why didn't I think of this?

Alan Wunsche

alan@wunsche.com

P.S. Have we connected yet on Twitter? Please follow my tweets at www.twitter.com/alanwunsche

Coca-Cola innovates delivery and generates new usage data (#innovation @cocacola)

As reported by Innosight in this month's issue of Strategy and Innovation, Coca-Cola is introducing the Freestyle dispensing machine. It's not only an innovative and versatile product dispenser, it's also a data generator, allowing for the device to communicate directly with Coca-Cola.

According to Coca-Cola's press release:

Coca-Cola North America today revealed that "Coca-Cola Freestyle™" is the brand name and logo for its new proprietary fountain dispenser entering market testing this summer. The fountain’s brand name captures its ability to deliver unprecedented beverage variety to suit any consumer taste -- all packaged in an innovative and interactive fountain experience.

"Coca-Cola Freestyle brings to life the refreshingly positive outlook that has always been associated with Coca-Cola," said Chandra Stephens-Albright, Senior Director of Marketing and Business Development for the brand. "It brings back the magic of the fountain of the past, re-imagines it for the future and then takes it a step farther by celebrating the idea that consumers can truly have their say at fountain -- with choices tailored completely for them."

The new self-serve fountains -- which represent a complete departure from equipment The Coca-Cola Company has offered before -- have been in development for nearly four years. The sleek new units being tested are touch screen operated, enabling consumers to select from more than 100 calorie and no-calorie brands – including varieties of waters, juices, teas and sparkling beverages that have never been sold in the United States.

The Coca-Cola Freestyle dispenser uses proprietary PurePour Technology™ to make dozens of branded beverages fresh to order, in the same amount of space as the current eight-valve machine. It will be tested in select quick-serve restaurants in Orange County, Calif., and Atlanta this summer before a wider introduction currently planned for early next year.

The particular exciting part of this story is the data side. The new dispenser helps Coca-Cola enhance its new product testing process and helps its retailers manage inventory. InformationWeek describes it here:

Freestyle will let Coke more easily test new drink flavors and new beverage concepts, such as adding various vitamin combinations to flavored waters and juices. The dispensers each contain 30 cartridges of flavorings that mix up 100 different drink combinations. The cartridges are tagged with radio frequency ID chips, and each dispenser contains an RFID reader. The dispensers collect data on what customers are drinking and how much, and transmit that information each night over a private Verizon wireless network to Coke's SAP data warehouse system in Atlanta. The company will use the data to develop reports that assess how new drinks are doing in the market, identify differences in regional tastes, and help fast-food outlets decide which drinks to serve.

Test marketing via Freestyle will be a lot cheaper than the model Coke's been using: bottling and bringing to market new products that sometimes don't gain traction and get canceled after a year or two. "This is a huge jump from our current fountain dispensers," says Christopher Dennis, Coke's IT director of e-business transformation. "It's like going from the dial phone to the BlackBerry."

Besides collecting data on what customers are drinking, Freestyle also lets Coke know what flavor cartridges each dispenser holds, so the company can advise outlets on when to order more. Coke also will use the wireless network to send out new drink formulas to the beverage machines with instructions on how to mix them up. And should the soda company ever need to recall a flavor cartridge, the network also lets it instantly disable dispensers across the nation.

Finally, here's a video by the mobile technology supplier that partnered with Coca-Cola.

I suppose that pretty soon machines like these will have their own twitter accounts!

Canada's Innovation Gap (#innovation #Canada @globeandmail)

An excellent article by Konrad Yakabuski in the July 1 issue of the Globe and Mail describes why Canada is lagging in its innovation imperative. The key vital sign for Canada is a 20% drop in Canadian R&D spending as a percentage of GDP since 2001.

Other numbers mentioned in the article:

- 3.5% of Finland's GDP is spent on R&D, compared with less than 2 per cent in Canada

- 100, number of engineers employed in R&D by General Motors of Canada

General Motors of Canada Ltd. currently employs about 100 engineers engaged in R&D activities, according to spokesperson Stew Low. It has promised to spend "almost $1-billion" on R&D in Canada over the next seven years as part of its $10.6-billion bailout by the federal and Ontario governments. But even that amounts to barely 1 per cent of annual sales, based on GM Canada's pre-crash revenues.

Also cited is the report "Business Innovation in Canada" recently published by the Council of Canadian Academies. The report addresses the key questions:

• How should the innovation performance of Canadian firms be assessed?
• How innovative are Canadian firms, and what do we know about their innovation performance at a national, regional and sector level?
• Why is business demand for innovation inputs (for example, research and development, machinery and equipment, and skilled workers) weaker in Canada than in many other OECD countries?
• What are the contributing factors, and what is the relative importance of these contributing factors?

A few highlights from the report's 14 point summary include:

• Canada has a serious productivity growth problem. Since 1984, relative
  labour productivity in Canada’s business sector has fallen from more than
  90% of the U.S. level, to about 76% in 2007. Over the 1985-2006 period,
  Canada’s average labour productivity growth ranked 15th out of 18
  comparator countries in the OECD group.
  
• Canada’s relatively poor productivity growth is due mainly to weak growth
  of multifactor productivity (MFP), which measures broadly the effectiveness
  with which labour and capital are used in the economy. The problem is not
  caused by shortcomings in Canada’s workforce or inadequate capital
  investment (with the exception of significantly lagging investment in
  information and communications technology (ICT)).
  
• Investment at the leading edge of technology (which represents the indirect
  acquisition of innovation) has also lagged. Empirical evidence suggests a
  correlation between investment in machinery and equipment and MFP
  growth. The most significant and puzzling area of lagging investment has
  been in ICT where average investment per worker in Canada was only about
  60% of the U.S. level in 2007. Investment in ICT is an important driver of
  productivity growth, particularly in many service-producing industries that
  are the main source of job growth in advanced economies. The ICT
  investment picture is consistent with the view that Canadian businesses on
  the whole — but always with notable exceptions — are technology
  followers, not leaders.

It's an important article at an important time, as the world struggles to emerge from recession. One can only hope that this article is a wake up call for Canada on Canada Day!

Future of Work | @Deloitte @Time

Any discussion about the innovation of management processes necessarily leads to the future of work, how work gets done and how to retain talent that will ensure the organization is agile, flexible and able to compete in the fast-changing global environment. Time is the latest to publish their insightful Future of Work online.

Deloitte's innovative employment practices are featured:

It's a shift, in other words, from a corporate ladder to the career-path metaphor long preferred by Deloitte vice chair Cathy Benko: a lattice.

At Deloitte, each employee's lattice is nailed together during twice-a-year evaluations focused not just on career targets but also on larger life goals. An employee can request to do more or less travel or client service, say, or to move laterally into a new role — changes that may or may not come with a pay cut. Deloitte's data from 2008 suggest that about 10% of employees choose to "dial up" or "dial down" at any given time. Deloitte's Mass Career Customization (MCC) program began as a way to keep talented women in the workforce, but it has quickly become clear that women are not the only ones seeking flexibility. Responding to millennials demanding better work-life balance, young parents needing time to share child-care duties and boomers looking to ease gradually toward retirement, Deloitte is scheduled to roll out MCC to all 42,000 U.S. employees by May 2010. Deloitte executives are in talks with more than 80 companies working on similar programs.

Time also mentioned labour trends in their report with these indicators:

According to consulting giant McKinsey & Co., nearly 85% of new jobs created between 1998 and 2006 involved complex "knowledge work" like problem-solving and concocting corporate strategy. Job opportunities in mathematics and across the sciences are also expected to expand. The U.S. Department of Labor spotlights network systems and data communications as well as computer-software engineering among the occupations projected to grow most explosively by 2016. Over the next seven years, the number of jobs in the information-technology sector is expected to swell 24% — a figure more than twice the overall job-growth rate.

P.S. For those noticing the title, it's an experiment with tags for updating this post on my twitter feed: www.twitter.com/alanwunsche

Googlenomics [@Wired]

Wired Magazine's "Secret of Googlenomics" article explains the math behind Google's AdWords, Google's online unique advertising auction.

The entire article by Stephen Levy is a great read but what I found particularly interesting is the following passage because it describes how every bit of data has potential value:

Keywords and click rates are their bread and butter. "We are trying to understand the mechanisms behind the metrics," says Qing Wu, one of Varian's minions. His specialty is forecasting, so now he predicts patterns of queries based on the season, the climate, international holidays, even the time of day. "We have temperature data, weather data, and queries data, so we can do correlation and statistical modeling," Wu says. The results all feed into Google's backend system, helping advertisers devise more-efficient campaigns.

To track and test their predictions, Wu and his colleagues use dozens of onscreen dashboards that continuously stream information, a sort of Bloomberg terminal for the Googlesphere. Wu checks obsessively to see whether reality is matching the forecasts: "With a dashboard, you can monitor the queries, the amount of money you make, how many advertisers you have, how many keywords they're bidding on, what the rate of return is for each advertiser."

Wu calls Google "the barometer of the world." Indeed, studying the clicks is like looking through a window with a panoramic view of everything. You can see the change of seasons—clicks gravitating toward skiing and heavy clothes in winter, bikinis and sunscreen in summer—and you can track who's up and down in pop culture. Most of us remember news events from television or newspapers; Googlers recall them as spikes in their graphs. "One of the big things a few years ago was the SARS epidemic," Tang says. Wu didn't even have to read the papers to know about the financial meltdown—he saw the jump in people Googling for gold. And since prediction and analysis are so crucial to AdWords, every bit of data, no matter how seemingly trivial, has potential value.

Innovating through a Recession

Professor Andrew Razeghi (www.andrewrazeghi.com) of Kellog School of Management has written a compelling piece called "Innovating through a Recession, When the going gets tough, the tough innovate" - it's available as a download here: PDF Download

Taking lessons from history and the Great Depression, Razeghi provides insights into how NYTimes, Fortune, Kraft (Miracle Whip), Motorala, Texas Instruments, La-Z-Boy, and Apple innovated and succeeded when others pulled back on their efforts.

He also shows how companies like Vlasic reduced their prices in the hopes of making it up on volume but in the end it damaged their brand.

Razeghi's 7 Principles:

1. Listen to the market.  It's quieter when it's less crowded.  Unmet needs abound.

2. Invest in your csutomers  Now they need you most.  Loyalty hangs in the balance.

3. Rather than reduce price, offer more value to your customers and demand greater value from vendors.

4. Increase communications with your customers.

5. Move longer-term projects forward not back.  Now is the time to grab market share.

6. In recession, not all costs are create equal.  Maintain or increase investment in "good costs"; prune "bad costs"; use judgment on "it depends costs".

7. If you don't have money at least spend the time.

- "Now is the time to unleash corporate creativity.  The greatest mistake you can make now is to mortgage your future by failing to innovate"

It's a very good piece for innovators looking for inspiration in challenging times.  I highly recommend it.

Vital Signs: BusinessWeek's 2008 Most Innovative Companies

BusinessWeek recently released its annual "Most Innovative Companies" issue and its list of The World's 50 Most Innovative Companies Interactive Scoreboard

Apple (AAPL) again leads our list. [Link to Apple brief here]But the added metrics and more global nature of our respondents produced new names. Tata Group and Nintendo both landed in the top 10 for the first time. And dark horses like struggling General Motors (GM) received a surprising number of votes, thanks to concept cars like the electric Volt and a renewed focus on design.

BW explains its methodology:

To determine our 2008 list of the 50 most innovative companies, the Boston Consulting Group once again asked executives to vote for the most pioneering companies in the last year. In a climate when innovation will be scrutinized more than ever, we added three financial measures. For 2008, votes cast in the BusinessWeek-BCG survey got an 80% weighting, while three-year revenue and margin growth each got 5% and stock returns were weighted 10%.

BCG sent the 17-question survey electronically in November to the 2,500 largest global corporations by market value. More than 2,950 executives responded, our largest sample ever. BCG also sent it to readers in senior management, including members of the BusinessWeek Market Advisory Board. Participation was voluntary and anonymous, and self-votes were eliminated. To compare financials of private companies, we used metrics equal to industry performance.

The survey itself isn't published but of particular interest in the scoreboard are the categories used to assess innovativeness in addition to the 3 key quantitive measures of revenue growth, margin growth and stock returns over the 2004-2007 period.

Survey Categories:

1. Products
   
2. Customer Experience
3. Processes
4. Business Models
   

Notably, Google was number 2 with a focus on online office software and upcoming video ads.

The issue provides some other interesting insights including a description of ING's approach:

The online banking arm of this Dutch financial giant, ING Direct, was a pioneer in consumer finance, with high-interest savings and no regular branches. In its U.S. ING Direct business, executives are frequently moved from one function to another to promote collaboration; the unit's internal "Innovation Pipeline" site offers a place for employees to swap and vet creative ideas.

The issue also notes that Starbucks has implemented its MyStarbucksIdea.com as I have blogged previously here.

Finally, it was interesting to see Facebook make it on the list for the first time!

In future posts, I'll profile the most innovative companies in more detail.

Vital Signs: BCG's Measuring Innovation 2007 Survey

Boston Consulting Group's Innovation practice has some interesting insights to measuring innovativeness in their "Measuring Innovation 2007: A BCG Senior Management Survey":

The paper's summary is a companion to the 2007 BCG-BusinessWeek innovation survey and BCG's Innovation 2007 Report:

For most companies, innovation is the key to driving growth, shareholder value, and competitive advantage in today's global economy. But even at the best companies, up to a third of all innovation initiatives are draining valuable resources.

According to the most recent BCG-BusinessWeek innovation survey only 46 percent of senior management are satisfied with their return on innovation spending while 63 percent of chief financial officers are still unhappy with their innovation results. Innovation remains a top priority for 66 percent of respondents, and 67 percent are planning to increase their investment in innovation.

The problem these companies face isn't a lack of ideas—most of them have more than enough. It's that companies don't have a disciplined process for turning those ideas into cash. An effective innovation-to-cash process (ITC) is the foundation of successful innovation, which we define as profitable innovation.

For those seeking measures for their innovations, BCG learned that the most common measures used by organization to assess their innovativeness were:

• Total funds invest in growth projects
• Projected versus actual performance
• Average development time per project
• Revenue realized from offerings launched in the past three years
• Allocation of investments across projects
• Number of projects that meet planned targets
• Cannibalization of existing product sales by new offerings
• Percentage of ideas funded
• Number of ideas killed or table at each milestone

In future posts, I plan to dissect the report and its recommendations in more detail.

Vital Signs: Cisco's 1100 New Business Ideas (I-Prize)

Here's another example of Open Innovation, this time courtesy of Cisco. Cisco has been running their I-Prize competition to generate the next new crop of business ideas (Q&A here):

Q: What is the Cisco I-Prize?

A: Cisco knows that the global community is an amazing resource of creativity and innovation. Therefore, Cisco is looking beyond its own resources and turning to the Human Network to identify its next major business opportunity. Before you submit your idea, consider what problems it addresses, how it's new and different, and who comprises your target market.

Cisco will select up to 100 semifinalist teams that will work with Cisco experts using state-of-the-art collaboration tools to build a business plan and presentation. Next, up to 10 finalist teams will present to a judging panel for the ultimate prize: the opportunity to start a new business unit with access to the resources that Cisco has to offer.

Raising the stakes on efforts of Dell and Starbucks I described previously, Cisco has put a value on the potential new businesses by providing a financial reward for the best business ideas:

What's At Stake

The winning team may have the opportunity to be hired by Cisco to found a new business unit and share a $250,000 signing bonus. Cisco may invest approximately $10 million over three years to staff, develop, and go to market with a new business based on your idea.

During the project, Cisco reps wrote:

Now two and a half months later we know that more than 1600 people have entered from almost 90 countries. There are many, many high-quality ideas worth considering as semifinalists. And the level of community discussion and interaction has been unbelievably high. Global collaboration is really working. Feedback from everyone has been extremely positive.

More recently, the voting process was discussed:

In I-Prize, there is a voting mechanism that lets participants raise (or lower) the overall score for an idea. This is not how we choose the best ideas. If so, why did we bother to put in the voting system? Let me explain: we have a set of internal questions that we asked for every idea: is it a big market, can Cisco get a good share, how close to our existing businesses, can we ensure enduring differentiation, etc. The answers to these questions were used to determine the overall score for an idea.

We then went back an looked at the user-voting and we also looked at which ideas had attracted the most feedback and discussion. We used this to check whether there were ideas that had attracted a higher community vote (but that maybe had been scored lower by our own internal evaluation). We also considered ideas that we had scored lower but which had attracted a lot of responses and discussions. We then chose some ideas in these categories to add to our list of semi-finalists.

The reason for doing this is that we wanted to combine expert opinion with the wisdom of crowds (and we wanted to see if there was any strong disagreement between the experts and the community!). If your idea got a low community vote--rest assured--we evaluated every idea on its merits without considering the vote. If you attracted strong interest from the community, we listened to that as well.

It's very interesting to see some of the stats posted by Cisco:

Team members from the Semi-finalists are a very diverse group:
- Competitors from 13 Countries on 5 Continents
- 20% of the teams are multi-country
- Teams ranging in size from 1 to 9 people
- Competitors ages were evenly distributed between people in their 20s, 30s and 40s or higher

For those of you curious about the ideas that were selected:

- Ideas fell into a broad range of categories: Comms Infrastructure, Connected Home, E-Learning, Mobility, Security, Services, Emerging Countries, Unified Communications, Video, Virtualization and Web 2.0
- When an idea was submitted had little bearing. Ideas were evenly distributed across the competition time frame
- Some ideas had lots of information, some had relatively little (at least publicly viewable) but some contributors who appeared to publish little did supply us with private information to help guide our selection
- Comments, votes and private information made the most difference when we were evaluating very similar ideas
- There were some great business ideas, but not so great for Cisco. We encourage those that believe passionately in their idea to continue working on them
- There were a few very good ideas that we have already been working on

As of writing this, the contest was still up and running and in the semi-finals phase:

The results are in: After reading, discussing and scoring over 1100 new business ideas, we have selected 32 teams as Cisco I-Prize semi-finalists.

Congratulations to the teams that have been selected. The Cisco team is very excited to be working with you on your semi-final presentations.

Interesting to see that they chose 32 teams out of a maximum target of 100. One can only assume that the only 32 ideas qualified.

Hope to read about an update soon!


P.S. Thanks to Paul Tran of BrightIdea for this heads up!

Vital Signs: Dell's 8,970 ideas and Starbucks' Top 20 Ideas In Action

As it relates to measuring innovativeness and creating growth strategies, measures of corporate performance, or vital signs as I refer to them in this blog, should include a sense of how good the organization is at generating ideas and converting them to products that generate cash flow.

I have previously written about Idea Capital and the value of ideas.

This posting is about how Dell and Starbucks are using Salesforce.com's Ideas application to generate new ideas for themselves to make them more innovative and competitive.

Salesforce.com describes it like this:

Who is it for?

Innovation is vital to the growth and success of any organization—large or small. The more people you can engage, the stronger your feedback loop becomes.

Employees
There are lots of ways you might leverage Ideas internally. Create a community for “ Sales Advice and Winning Strategies” to capture the knowledge of your top sales reps. You could also create a company wide community with categories for each department so that your employees can submit ideas to Marketing, Product Development, or HR - regardless of where they sit within the organization.

Customers and Partners
Ideas can be extended to your customers and partners as well. Many companies are interested in using it to capture customer feedback, You could also use it to facilitate discussion between customers, deflecting questions to experts in the community while driving down support costs.

At Dell, as of March 30, 2008, they're Ideastorm website claims to have received 8,970 ideas which have been promoted 615,865 times and have been commented upon 69,514 times by other users.

Of particular interest is the user rankings table . Dell has exposed the list of contributors in its community, complete with a total points ranking, votes cast, and articles submitted. Currently, user dhart has 49,774 points, 109 votes cast, and 7 articles submitted. This could mean that dhart has the most quality ideas to help Dell become more successful.

Over at Starbucks, they launched a similar idea site on March 19, 2008, also on the force.com platform. MyStarbucksIdea begins with the following invitation to participate:

You know better than anyone else what you want from Starbucks. So tell us. What’s your Starbucks Idea? Revolutionary or simple—we want to hear it. Share your ideas, tell us what you think of other people’s ideas and join the discussion. We’re here, and we’re ready to make ideas happen. Let’s get started.

Starbucks also delivers a blog called Ideas in Action to share how the ideas are being evaluated and implemented. The first entry by CEO Howard Schultz encourages potential idea generators here:

At the core of the Starbucks Experience is human connection. Every week, nearly 50 million customers are connecting with over 170,000 partners (employees) in Starbucks stores around the world—creating an unparalleled sense of community.

This unique Starbucks community has inspired many people to suggest that Starbucks participate in the phenomenon of online communities. Well, now we’re ready to begin.

Welcome to MyStarbucksIdea.com. This is your invitation to help us transform the future of Starbucks with your ideas—and build upon our history of co-creating the Starbucks Experience together.

And just like in our stores, our curious and passionate Starbucks partners are here. Engaging in daily conversation—bringing the warm, human connection of a great Starbucks experience to this online community.

So, pull up a comfortable chair and participate in My Starbucks Idea. We’re here, we’re engaged, and we’re taking it seriously.

Two days later, a Starbucks spokesman posted in the Ideas in Action blog:

We are completely thrilled at the number of ideas (thousands!). We are stunned by the level of conversation (half of the top 20 ideas have 50 or more comments each -- 50!). We are stoked by the amount of participation (tens of thousands of votes).

What's particularly interesting about both of these examples is that the companies have gone outside their own walls, beyond merely engaging their own employee base (although they should obviously do that!) to engaging their customers in creating ideas to help them be more successful. They're gutsy moves, opening themselves up to potential public criticism (e.g. "DO something about the click noise..." idea)

Starbucks' fine print regarding its ownership of your ideas is here:

The submission of your Idea to Starbucks is entirely voluntary, non-confidential, gratuitous, and non-committal. You understand that Starbucks may be working on the same or a similar Idea, that it may already know of such Idea from other sources, that it may simply wish to develop this (or a similar Idea) on its own or it may have taken/will take some other action. In return for Starbucks' review and consideration of your Idea, you acknowledge that you have read, understand and agree to the terms enumerated below, and further agree that these terms shall apply to any additional material previously or later submitted, until such time as Starbucks otherwise agrees in writing

The challenge in these implementations is that the companies do not place bounties on solutions (as in the case of Innocentive or the $100M innovation fund for Apple iPhone native applications mentioned in this blog) but view it more as a conversation, with no promise of financial reward to their external contributors. It will be interesting to see if these attempts at incorporating the "voice of the customer" into the innovation cycle will pay off for Dell and Starbucks. It's not clear whether Finance is at the table helping to place a value on these ideas but if they're not they should be. My view is that the bounty-approach will ultimately generate more interest.

Vital Signs: Apple's 1301 web apps and over 100,000 SDK downloads

How strong are Apple's (AAPL) corporate vital signs? Based on the two metrics in this headline their getting stronger!

As I've mentioned here before, I've expanded my definition of corporate vital signs beyond traditional lagging financial measures to include leading indicators of competitiveness and innovation. As investors appreciate when they estimate growth of future cash flows, there are no financial measures on balance sheets and income statements to reflect a company's reach and access to talent beyond its four walls. Traditional financial measures can't reflect the value of having a global developer community building software for your hardware device. A new set of corporate vital signs is required.

Let's take a look at Apple's newest innovation, the Apple iPhone and iPod touch. While much more than merely interesting, their success could have been limited by the ability of Apple's limited in-house resources to develop new and exciting applications. But with the recent launch of the new SDK, Apple has poured the foundation for an entirely new innovation platform. No longer does Apple need to rely on in-house developers to create native applications.

Without the SDK, the developer community can already make web apps available to run on the devices. These applications are being displayed by Apple at http://www.apple.com/webapps/. As of March 30, 2008 there were 1301 web apps listed in the Apple webapps website.

This is interesting but not where the real value of Apple's innovation lies. What's more interesting is the upcoming June '08 launch of Apple's store for native iPhone applications. Development of these native applications is made simpler through the iPhone Software Development Kit (SDK) and Apple claims 100,000 downloads of the SDK in the first 4 days since its launch:

“Developer reaction to the iPhone SDK has been incredible with more than 100,000 downloads in the first four days,” said Philip Schiller, Apple’s senior vice president of Worldwide Product Marketing. “Also, over one million people have watched the launch video on Apple.com, further demonstrating the incredible interest developers have in creating applications for the iPhone.”

Apple also previewed the new App Store, a breakthrough way for developers to wirelessly deliver their applications to every iPhone and iPod touch user. Developers set the price for their applications—including free—and retain 70 percent of all sales revenues.

Leading developers such as AOL, Electronic Arts, Epocrates, salesforce.com and Sega have already demonstrated amazing applications using the SDK, and developer response continues to be phenomenal with more developers embracing the platform.

As Apple takes in 30 percent of all applications sales, a new leading measure of Apple's cash flow will certainly be the "number of 3rd party applications" and "the price of the application"

The fun doesn't stop there. Apple pretty much guaranteed strong interest in the platform by bringing the famed KPCB venture capitalists to the table. At the launch of the SDK, KPCB announced that they have created a $100 million iFund to invest in companies that are able to bring new applications to the platform:

"A revolutionary new platform is a rare and prized opportunity for entrepreneurs, and that's exactly what Apple has created with iPhone and iPod touch," said John Doerr, Partner at Kleiner Perkins Caufield & Byers. "We think several significant new companies will emerge as this new platform evolves, and the iFund will empower them to realize their full potential."

And Steve Jobs proudly declared:

"Developers are already bursting with ideas for the iPhone and iPod touch, and now they have the chance to turn those ideas into great companies with the help of world-class venture capitalists," said Steve Jobs, Apple's CEO. "We can't wait to start working with Kleiner Perkins and the companies they fund through this new initiative."

Finally, not content to remain a consumer device, Apple announced that they are building Enterprise-grade connectivity into the next generation of the device to be available in June '08.

Just imagine this...the iPhone is now on the verge of a development boom. This development, spurred on by a $100 million venture fund, will deliver a whole new suite of mobile applications for the consumer as well as the enterprise. By opening up the development platform, Apple has significantly strengthened its competitive position and set itself in motion to become the leading provider of handheld entertainment and productivity devices for some time to come.

P.S. Apple is most certainly borrowing a page from Salesforce.com and its force.com platform. Salesforce.com has been a pioneer in allowing developers to build and sell applications that will run on Salesforce.com's platform. More on that in another post.

Vital Signs: Wal-Mart CEO Describes the Company of the Future ... and a transformation into an energy provider for its customers

Wal-Mart CEO and President Lee Scott describes Wal-Mart's vision in a January 23, 2008 presentation to its Wal-Mart U.S. Year Beginning Meeting. (full video here)

This was not a speech merely about the financial performance measures of Wal-Mart U.S. but more a rallying call for Wal-Mart's leadership in solving the world's most difficult challenges through a vision for the future that will fulfill its mission to "save people money so they can live better"

I looked for the vital signs of Wal-Mart in the speech and was not disappointed. Scott began with the basic Financial Vital Signs:
Lee recounted the following two financial vital signs for Wal-Mart
* 2.4 % comparable stores increase as competitors were having decreases
* 18.2% increase in net sales

What really surprised me was that he then went on to focus on the major issues of the world today and how Wal-Mart will be a leading problem-solver in Health Care, Energy Efficiency, and Supply Chain Management.

More Affordable Health Care Through Efficiency
Lee described Wal-Mart's transformation of its technology leadership to providing value added services for health care:

We think we can even do more with prescription costs. This year we will be contracting with select employers in the U.S. to help them manage how they process and pay prescription claims. Our approach will be based on taking out unnecessary costs while providing high quality health care products and services. With this effort, we believe we can save employers more than $100
million this year alone.

Vital Signs:
* 93%/82%: number of Wal-Mart associates with health insurance/ Americans insured
$100 million: Wal-Mart's target to save employers
* 2010: Year by which Wal-Mart will provide e-Health records
* 8 million: number of electronic prescriptions which Wal-Mart will fill in the U.S. in 2008 (400% increase over prior year)


A More Energy Efficient Future

Scott explained the energy challenge in terms of the impact on Wal-Mart's customers:

"Every day in our stores, we see the impact of $100 a barrel oil and high natural gas and electricity prices. We see our customers having to choose between filling up their gas tanks or buying food and medicine and clothes. In America, out of pocket energy costs for working families have doubled over the past decade. These families now spend an estimated 17% of their monthly income on energy. Somebody has to do something. And your Wal-Mart will."

“What if we extended our mission of saving people money so they can live better -- to saving people money on energy?” Scott asked. “We believe we can do this. Wal-Mart can help our customers use less energy and spend less on energy. This will also help every country where we operate reduce their dependence on foreign oil.”

He then outlined a vision for how Wal-Mart innovate along with the auto manufacturers to actually providing energy to its customers through its vast network of

"What if we looked at whether Wal-Mart could provide eco- friendly energy to our customers? What could we do in the U.S. -- where per capita energy use is among the highest in the world?"

"Imagine your customers pulling into your parking lot, and seeing wind turbines and solar panels, and being able to charge their cars while they shop. I think that would make them feel good about shopping at your stores. It would also make them feel good if they could save money in the process. What if we fed the power generated by those wind turbines and solar powers back into the electrical grid? Just imagine the impact of our customers being able to buy eco-friendly energy at the unbeatable Wal-Mart price."

Energy Efficiency Vital Signs:
* 30%: energy efficiency improvement of flat panel TV's sold
* 3 million: number of homes that can be powered with Wal-Mart's projected energy savings from working with suppliers "to make the most energy intensive products in our stores, anywhere in the world, 25% more energy efficient within three years...or the equivalent of 10 million barrels of oil."

Supply Chain of the Future
On the topic of ensuring that products are made safely, Scott shared a vision for an industry-wide transformation:

"In the next three years, we would like to build a very different system. We believe that there should be one framework of social and environmental standards for all major global retailers. And there should be one third party auditing system for everyone. This will ensure improvement can occur across the board on a level playing field."

We first read about The Wal-Mart Effect and its relentless pursuit of low prices. Wal-Mart's business practices have been often criticized by organizations such as Wal-Mart Watch, most recently in "Wal-Mart Opens 4 Efficient Stores - Only 6,796 Energy Hogs To Go". However you land on your view of Wal-Mart, no one can argue that the inspiring message Lee Scott delivered was about a company that cares for the world and the U.S. people, and a company that will leverage its leadership in technology and its reach to benefit its customers, its employees, and its shareholders.

Vital Signs: Google's others numbers!

In "Google: A Druckerian Ideal?", Rick Waltzman of the Drucker Institute unveils an interesting set of measures that help to tell the story behind the financials:

Google (GOOG) turned out quite a dazzling display of data recently when it released its third-quarter results: Profit jumped 46%. Revenue soared 57%. The company's shares shot up $6.14, to more than $639 each, on the news. But it's another set of figures that most impresses me: 17, $0, and 20%.

These refer, respectively, to the number of cafés at Google's Mountain View (Calif.) campus; what it charges employees for all the meals and snacks eaten there; and the amount of time it encourages its engineers to carve out each week to tackle company-related projects that interest them personally but aren't part of their core assignments.

The 20% Google allows engineers to follow their passions and this has resulted in innovative products such as Gmail, Google News, and the Sky feature on Google Earth. They've certainly taken a page from 3M's innovation playbook described in a recent article At 3M, A Struggle Between Efficiency And Creativity":

Official company policy allowed employees to use 15% of their time to pursue independent projects. The company explicitly encouraged risk and tolerated failure. 3M's creative culture foreshadowed the one that is currently celebrated unanimously at Google (GOOG ).

Thanks Rick for highlighting other vital signs that help us understand more of the story that underlies Google's financials!

Vital Sign: 4,500 Scientists in GE’s Bangalore John F Welch Technology Centre

The first post tagged as 'Vital Signs'. 'Vital Signs' posts will be posts which feature a Key Performance Indicator of the innovation economy.

As reported in the article "GE puts India on Centre Stage" (Business Standard), GE has drawn up plans to make India a global sourcing hub for all its core businesses. The story illustrates GE's strategy for sourcing innovative products from India:

Giving an example of products developed in India, which can be taken to mature markets, Chopra said that GE’s John F Welch Technology Centre in Bangalore had developed a mobile electro-cardiogram, which costs a fraction of what existing machines cost.

“We can even sell it for use at home in the US,” said Chopra, adding, “We solve unique problems here as over 300 million people live at less than $1 a day. The innovation coming out of this country in terms of technology as well as business models can help us in whatever we do.”

Five for the Future - By the Council for Competitiveness

The Council for Competitiveness (www.compete.org) recently released a paper titled "Five for the Future"

The Council's Roadmap contains five imperatives:
1. Challenge the frontiers in science and technology
2. Renew access to secure and sustainable energy
3. Achieve advantage with creative and cutting-edge talent
4. Transform risk intelligence into resilience
5. Engage in the global economy

The document is an excellent read for anyone looking for a synthesis of the top business issues today.

Summary:

Creating Competitive Advantage:
Five for the Future is a Call to Action. In this hyper-competitive, rapidly changing environment, it is only prudent to glance in the rear view mirror from time to time.

But America needs more than rear view mirror policies. The United States needs a roadmap for success in the global economy—one that charts a strategic direction between complacency and panic. And the time to act is now, when the U.S. margin of leadership is strong.

Our success will, in large measure, be built on our ability to understand how the game has changed and respond with a new set of strategies and capabilities:

• Lead in research discoveries that promise to create whole new industries and markets
• Build on knowledge and technology fusions that have the capacity to transform products and services
• Provide every American with the tools to compete in the global economy
• Develop risk intelligence and resilience in an age of turbulence
• Extract value by being a first mover in addressing global challenges

This demands an environment that supports innovation in all its forms and anticipates the new dynamics that create competitive advantages for robust risk management and productivity-enhancing approaches to sustainability. It offers a framework for policy makers, presidential candidates, private sector decision makers and others to move forward decisively to secure America’s competitive future.