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!

Vital Signs Framework for Performance Management (Part1) #vitalsigns #innovation

What are your organization's vital signs? Are they clearly aligned to your strategy? Are they fully integrated?

I get asked by corporate clients to help align strategic objectives to performance measures in the context of a planning, budgeting, forecasting project. Over the past couple of years, I've been developing a concept of corporate "vital signs".

Depending on the scope of the engagement, I begin an assessment with one key question: "how healthy (along a variety of dimensions) is the organization/business unit/functional group?" The analogy comes from the human body metaphor for gauging the health of a person but I've taken some liberty to expand it to include not only health but competitiveness, process performance, the culture of the organization, effectiveness of the leadership team, and the skill sets of the people.

The concept of vital signs is even more important in today's turbulent times. Take for example the measuring of business health (think about the bank stress tests: "Banks Needs at Least $65B in Capital") to assess the state of the economic recovery.

Play this quick mind game: If I asked your key stakeholders to list your company's vital signs in relative importance, what would they say?

Use this definition: Vital signs are a limited set of internal and external performance and risk indicators that satisfy your stakeholder needs. Vital signs can be planned, forecasted, measured, and analyzed against your strategic objectives. Note this definition is more than standard scorecarding because it looks externally as well as looking at the risks.

In the true spirit of growing economic value, would your Board, as a proxy for shareholders and stakeholders say "revenue growth" is a vital sign to indicate that your business model is competitive and that you are serving more customers? Or would it say that "operating margin" is a vital sign to indicate that you are running a lean operation? They are very likely to point to strategic risk but would they know how to measure it?

Would the management team look at "% revenues from products/services introduced in the past 2 years" as an indicator of innovativeness?

Would your employees say that "% customers highly satisfied" is a vital sign for how well you serve your customers?

What about your customers? Maybe they'd say that your company's vital signs should be your ability to solve customer problems or "% of customer problems resolved on the first call".

Would the public, as your ultimate stakeholder, insist it is your "carbon footprint"?

The fact is you may be saying "yes!" to all of these questions and you would be right. Depending on your stakeholder's perspective, there's a vital sign that's more important to them because it drives their decisions as they interact with or do work for your organization.

Clearly a hospital's vital signs are different from a car manufacturer's vital signs which are different from a professional services firm's vital signs.

How are these vital signs best identified? How do you know you've got the right ones? In future posts, I'll describe what I call the "Vital Signs Framework" for identifying and integrating your vital signs into the strategic and operational management process.

Acer Netbooks to run #Google #Android OS and threaten #Microsoft OS revenues

The Globe and Mail reported here that Acer will be selling netbooks with Google's Android free operating system (OS). The vital signs on this move mean that although today 80% of netbooks run the Windows OS today and Microsoft gets $15-$20 (U.S.) per machine for the OS software, this move can be viewed with a risk lens.

In a classic disruption described by Christensen and Raynor in Innovator's Solution, Google has moved over the years from offering a software with much less functionality to one that can hit at the core of Microsoft's cash cow operating system. Microsoft's core business is very likely at risk.

This is a very good example of the need for CFO's and corporate planners to start building risk drivers into their driver-based operating budgets. In this case, the volume [# of netbooks sold with the MS operating system installed] is a driver for Microsoft's budgets and the price rate is $15 per installation. While Acer's move was anticipated for some time, with this announcement those revenues are suddenly at risk and should be offset with a risk volume driver [# of netbooks sold that will sold with Google Android instead of an MS OS] to reflect the anticipated reduction in volume.

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: IMF World Economic Outlook Update (January 2009)

At the WEF Davos January 2009 Meeting, the session called "Rebooting the Global Economy" began with Matthew A. Winkler (Editor-in-Chief, Bloomberg News, USA) providing a rundown of the International Monetary Fund's (IMF) latest outlook. Going to the source January 2009 World Economic Outlook Update, the IMF gives us this summary:

"World growth is projected to fall to ½ percent in 2009, its lowest rate since World War II. Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy. A sustained economic recovery will not be possible until the financial sector's functionality is restored and credit markets are unclogged. For this purpose, new policy initiatives are needed to produce credible loan loss recognition; sort financial companies according to their medium-run viability; and provide public support to viable institutions by injecting capital and carving out bad assets. Monetary and fiscal policies need to become even more supportive of aggregate demand and sustain this stance over the foreseeable future, while developing strategies to ensure long-term fiscal sustainability. Moreover, international cooperation will be critical in designing and implementing these policies."

For those of us who lead strategic planning efforts, we work through a rigorous process of establishing a range of possible future scenarios (reference "Managing Amid Uncertainty"/PDF by author Michael Raynor of The Strategy Paradox) and build strategies that are consistent with those scenarios. We use macro economic factors and more industry specific factors.

The IMF's report provides the following macro economic factors:

• Global growth in 2009 is expected to fall to ½ percent when measured in terms of purchasing power parity and to turn negative when measured in terms of market exchange rates.
• The global economy is projected to experience a gradual recovery in 2010, with growth picking up to 3 percent.
• Financial markets are expected to remain strained during 2009. In the advanced economies, market conditions will likely continue to be difficult until forceful policy actions are implemented to restructure the financial sector, resolve the uncertainty about losses, and break the adverse feedback loop with the slowing real economy. In emerging economies, financing conditions will likely remain acute for some time—especially for corporate sectors that have very high rollover requirements.
• Growth in emerging and developing economies is expected to slow sharply from 6¼ percent in 2008 to 3¼ percent in 2009, under the drag of falling export demand and financing, lower commodity prices, and much tighter external financing constraints (especially for economies with large external imbalances).
• The IMF's baseline petroleum price projection has been revised down to $50 a barrel for 2009 and $60 a barrel for 2010 (from $68 and $78, respectively, in the November WEO Update), and risks to this projection are on the downside.
• In the advanced economies, headline inflation is expected to decline from 3½ percent in 2008 to a record low ¼ percent in 2009, before edging up to ¾ percent in 2010. Moreover, some advanced economies are expected to experience a period of very low (or even negative) consumer price increases. In emerging and developing economies, inflation is also expected to subside to 5¾ percent in 2009 and 5 percent in 2010, down from 9½ percent in 2008.

References: IMF World Economic Outlook Update 28 January 2009, PDF)

The World is Your Think Tank

In a recent paper, "The World is Your Think Tank - How to Harness Idea Flow and Top Talent for Competitive Advantage" I wrote about a new business model that can harness both internal and external talent more effectively, including references to Dell, IBM, and Innocentive :

To compete against Asian organizations, North American companies need to continually become more competitive and innovative. As the world becomes increasingly “flat” and hypercompetitive, labour advantages will tip the scales in favour of companies in developing nations. A key determinant of future success for western European and North American organizations will be the ability to attract creative, problem-solving talent.

The world is your think tank proposes a new HR-finance innovation management team and decision-making model to successfully translate idea flow into cash flow. This new model uses an enterprise-wide process for tapping the creativity of employees and the global talent pool. Only the organizations with access to the best ideas and the best-integrated idea management processes will achieve long-term survival.

Organizations must also take the crucial next step of managing the idea flow so they can identify and bring the best ones to fruition. By tightly integrating the HR and finance functions into a new role that sparks and manages idea flow, global talent from anywhere can be transformed into cash flow and balance sheet value.

As the financial crisis has resulted in a global recession in 2009, I am even more convinced that both the HR organization and the CFO have significant responsibilities to ensuring that the best ideas are surfaced and acted upon.

Vital Signs: HP's environmental goals

On the topic of vital signs relating to corporate sustainability initiatives, HP is setting a strong example of how global organizations can contribute to the reduction of their carbon footprint:

Picking up on the Davos call for investments needed to develop a clean energy infrastructure and move to towards a low-carbon economy, the following recent post was higlighted by the "Green SOCH @ ISBR" blog:

"Sustainable computing - As part of this program, they are upgrading the core sites in a phased approach, with new technology and more efficient use of space. Through this and other energy efficiency initiatives, they reduced absolute energy use from operations by 1% in 2006. That equals savings of approximately 35 million kWh and reduction of the carbon footprint by 18,000 tons of greenhouse gases. HP has set a goal to reduce the combined energy consumption of HP operations and products 20% below 2005 levels by 2010."

More specifically from HP's 2008 Global Citizenship Report, HP has set the following target metrics:

2010

HP will reduce the combined energy consumption and associated GHG emissions of HP operations and products by 25 percent below 2005 levels¹ by achieving the following:

• Operations: HP will reduce energy consumption and the resulting GHG emissions from HP-owned and HP-leased facilities worldwide to 16 percent below 2005 levels.²


• Products: HP will reduce the energy consumption of HP products³ and associated GHG emissions through specific goals for representative product categories, including the following goals for some of HP’s highest-volume PCs, printers and servers families:
• Improve energy efficiency for high-volume server families by 50 percent, relative to 2005⁴
• Reduce the energy consumption of volume desktop and notebook PC families by 25 percent, relative to 2005⁵

2011

• Products: Improve energy efficiency for high-volume printer families by 40 percent, relative to 2005⁶

Progress: We reached 19.2 percent reduction in our combined operations and products energy use at the end of October 2007, the end of HP’s reporting year. We are confident that we surpassed the 20 percent mark by February 2008, more than two and a half years early.

Reference:
Green Soch @ ISBR

World Economic Forum Report: US $515 Billion needed in Green Investments

The WEF's Green Investing: Towards a Clean Energy Infrastructure report was released on 29 January 2009 and it contains some vital signs for Green investments:

"New Energy Finance, which collaborated with the World Economic Forum on the report, warns that unless at least US$ 515 billion per annum is invested in clean energy between now and 2030, carbon emissions will reach a level deemed unsustainable by scientists, causing temperatures to rise by two degrees globally."

"The report identifies eight emerging, large-scale clean energy sectors that are expected to significantly contribute in the move to a clean energy infrastructure of the future: onshore wind, offshore wind, solar photovoltaic, solar thermal electricity generation, municipal solar waste-to-energy, sugar-based ethanol, cellulosic and next generation biofuels, and geothermal power."

"Clean energy opportunities have the potential to generate significant economic returns. The report shows that even after a tumultuous 2008, an index of the world’s 90 leading clean energy companies had a five-year compounded annualized return of almost 10%, unmatched by the world’s major stock indices."

Other highlights from the report include:
• Clean energy investments increased from around US$ 30 billion in 2004 to over US$ 140 billion by 2008. Investments in 2008 exceeded expectations at US$ 155 billion (the report is based on projections for 2008 – which suggests that US$ 142 billion would be invested by year-end).
• Investment in clean energy has not only increased, but has also diversified geographically. Developing countries attracted 23% (US$ 26 billion) of asset financing in 2007, compared to 13% (US$ 1.8 billion) in 2004.
• In addition, four key enablers for a shift to clean energy will be energy efficiency, smart grids, energy storage, and carbon capture and storage.
• Well-developed conditions for innovation, markets for clean energy through public procurement, energy efficiency standards and stable and simple policies are essential to meet the climate change challenge

The report provides a solid foundation for scenario planning for clean energy initiatives.

References:
Press Release: World Economic Forum Report: US $ 515 Billion needed in Green Investments;

Shaping an Opportunity Out of Crisis: A message to participants in the World Economic Forum Annual Meeting 2009 from Members of the Global Agenda Council on Climate Change

WEF 2009 (Davos) - "Shaping the Post-Crisis World"

The 2009 World Economic Forum, the overall them being 'Shaping the Post-Crisis World', is under way in Davos, Switzerland 28 January 2009 to 1 February 2009. The WEF backgrounder is summarized here:

"The World Economic Forum Annual Meeting 2009 promises to be one of the most important events in the Forum’s history. The significance of the Meeting is such that 42 heads of state and government have already confirmed their participation in Davos-Klosters where they will join business leaders as well as NGOs, Trade Unions and experts from a wide range of fields. The Meeting will be focused on managing the current crisis and shaping the entire post-crisis agenda, from economic reform to climate change. Participation is by invitation only and strictly limited to the criteria and quota of each stakeholder group. The World Economic Forum Annual Meeting 2009 is characterized by the unparalleled quality of its business participation. This year, over 2,500 participants from the business, political and cultural communities will address the Annual Meeting’s overall theme − Shaping the Post-Crisis World. There is a unique opportunity at the beginning of 2009 for leaders from industry, government and civil society to shape this transformation at an early stage for the benefit of all stakeholders. The objective of the Annual Meeting 2009 is to catalyse a holistic and systematic approach to improve the state of the world in a manner that integrates all stakeholders of global society. An important preparatory conference convened the most comprehensive network of experts in the world in Dubai in November. Over 700 members of 69 Global Agenda Councils met to advance solutions to the most critical challenges facing humanity. Their insights and recommendations have helped to catalyse solutions for the manifold challenges we face in 2009."

The webcasts are provided at the following link: http://gaia.world-television.com/wef/worldeconomicforum_annualmeeting2009/

For those looking for a English mainstream media view of the conference, check these links: CNN http://edition.cnn.com/SPECIALS/2009/news/davos/ and The Times(UK) http://business.timesonline.co.uk/tol/business/economics/wef/

The panel sessions this year are a rich source of metrics necessary for forward looking executives when planning future business scenarios. In a series of forthcoming entries, I will be reviewing the sessions with a specific look at the global economic metrics and vital signs mentioned.

WEF References: WEF Global Risks Report 2008, Session Summaries

Vital Signs: December 2007 was peak of US Economy according to NBER

Straying away from any specific company for this post but looking at the vital signs of the economy, the National Bureau of Economic Research (NBER) met on November 28, 2008.  The committee determined that "a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months."

A few other excerpts from the report illustrate the NBER's decision-making and key metrics:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.

The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.

The committee identified December 2007 as the peak month, after determining that the subsequent decline in economic activity was large enough to qualify as a recession.

More details on this pronouncement are found here.

The most important next question on executives' minds is how long will the recession last? There is clearly not an easy answer as evidenced by a recent CFO.com poll in Future Tense.  The article summarizes a recent poll of executives, 16% of which believe they are in the dark when it comes to forecasting future revenues!  

Vital Signs: Measuring Innovation - BCG's Innovation 2008 Report

Apple, Google and Toyota are once again named the 3 most innovative global companies by BCG's Innovation 2008 Report.

To make it to the list, the following criteria were used in the questionnaire to about 3,000 global executives:
* The company employs innovative operational processes that give it an advantage
* The company's business models for revenue streams are new and differentiated
* The company has created unique customer experiences that create loyalty
* The company has developed breakthrough products
* The company has developed breakthrough services

The report highlights five common characteristics that distinguish the best innovation leaders:
* The ability to tolerate ambiguity
* The ability to assess and be comfortable with risk
* The ability to balance passion and objectivity
* The ability to change
* The ability to command respect, even from those who are skeptical

Specific to the Vital Signs theme on measurement, in a companion report on innovation measurement, Measuring Innovation: Squandered Opportunities, the following statistics were presented:
* Only 35% of executives are satisfied with their company's current innovation-measurement practices
* Only 43% of companies track innovation as rigorously as they track their core business operations, even three out of four executives believe their company should do so
* Only 22% of companies consistently tie employee incentives to innovation metrics. 36% of companies never tie them together

The most popular metrics for gauging the success of innovation efforts are customer satisfaction (54 percent of companies said they use it) and the percentage of sales from new offerings (47 percent).

What's really surprising is the low level of implementation of innovation measurement practices. The report provides a good starting point with innovation-to-cash metrics, including measures which cover Startup Costs, Speed (time to market), Scale (time to volume), and Support Costs.

Vital Signs: Brand Value - Top 100 Most Powerful Brands (2008)

Does being innovative result in "brand value" and therefore shareholder value? There's new data to suggest that the correlation exists.

Millward Brown Optimor has released its third annual Brandz Top 100 Most Powerful Brands Ranking

The Top 10 List (in contrast to BusinessWeek's 2008 ranking of World's Most Innovative) is as follows:

1. Google (No.2)
   
2. GE (No.4)
   
3. Microsoft (No. 5)
   
4. Coca-Cola
5. China Mobile
6. IBM (No.12)
   
7. Apple (No.1)
   
8. McDonald's (No.30)
   
9. Nokia (No.10)
   
10. Marlboro
    

Of note is that Coca-Cola and China Mobile did not make the Most Innovative ranking but they're in the top 5 global brand value ranking. In the case of stalwart Coca-Cola, the surveys seem to indicate that the brand is strong but the company is not an innovator. It would appear , however, that with the newcomer China Mobile, brand value does not necessarily rely on being innovative (it didn't make BusinessWeek's regional list) when you can tap into the world's largest growth potential!

As a contrast to BCG's approach to surveying executives for the World's Most Innovative and looking at historic shareholder value growth, Millward Brown Optimor quantifies and projects expectations of brand value using quantitative measures and consumer surveys:

"The data for BrandZ is collected by interviewing consumers about brands from categories in which they shop on a regular basis. Respondents evaluate those brands competitively: they are asked to think about all the brands that they know within a category. The interviews deliver valuable insights because respondents who know a category are better suited to tell us what brand attributes matter to them most. These attributes are key measures of brand strength. BrandZ has interviewed over 1 million consumers who cumulatively compare 50,000 brands."

"Brand value is the financial value of a brand defined as the sum of all earnings that a brand is expected to generate. For the purpose of the BrandZ Ranking, Millward Brown Optimor values brands in three steps. First, we establish a company’s intangible earnings and allocate them to individual brands and countries of operation, based on publicly available financial data from Bloomberg, Datamonitor (www.datamonitor.com) and our own research. Secondly, we determine the portion of intangible earnings attributable to brand alone, as opposed to other factors such as price. This metric, known as Brand Contribution, reflects the share of earnings from a product or service’s most loyal consumers or users. For this second step, we use research-based loyalty data from the BrandZ database. Finally, we project the brand value forward based on market valuations, the brand’s risk profile, and its growth potential."

Finally, the 2008 BrandZ press release provides the following takeaways:

1. Established vs Emerging Asia. Chinese brands continue to get stronger.
   
2. BRIC's (Brazil, Russia, India, China) continue to help drive international growth.
3. The Technology sector boom. Technology led this year's brand value growth of $187.5bn. This is more than half of the Top 100’s total increase.
   

The net of this new data and methodology (see details in 2008 Report) is a calculation is that has 3 key factors:

Brand Value = Intangible Earnings x Brand Contribution x Brand Multiple

With globalization and the rapid growth of China, it will be fascinating to see how these rankings evolve over time! Comparing the two reports mentioned in this post, there does appear to be a significant connection between innovation and brand value. In future posts I intend to dissect the equation, further unpacking how the BrandZ report makes key assumptions in predicting the future. Let's not forget, however, Michael Raynor's recent strategic research and bestseller, The Strategy Paradox, that concluded you can't predict the future!

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.