Innovation Lessons from the Failure of Circuit City: Business Model Innovation and Finding the Real Needs to Meet

Bye Bye Circuit City over at the Permanent Innovation Blog discusses the demise of Circuit City and draws a valuable insight from a Dutch study on consumer electronics. The latter showed that for 50% of consumer returns, the products worked fine - it was the hassle of installing and operating these increasingly complex goods that made consumers give him and hit the big red "Not Easy" button. Circuit City may have been focused on providing zillions of choices without offering the expertise that consumers needed to make the right choice in the first place and then to make it work easily. Best Buy and their famous Geek Squad may represent a more innovative approach to managing the service end of the business. In today's world, the business model that neglects service and knowledge will lose customers and profits quickly.

Whatever your business, innovation in how you do business is needed. How do you identify unmet customer needs? Are your customer service people deeply connected to your marketing and R&D folks? Are you learning from your customers and finding what jobs they really need to have done? Are their frustrations sources of inspiration for your innovation? Or is customer service something your outsource to people who don't know and care about your business needs?

Another lesson is the need for simplicity in the products and services we offer. This isn't just a Circuit City problem - it's also a problem for manufacturers in numerous areas. Thick user manuals with complex installation instructions loosely based on English are not working. The winners over the next decade will increasingly turn to sound design and human-centric thinking to make their products less likely to be returned by a computer with installation angst who hit the "Not Easy" button.

Growth Through Innovation at Small and Medium Sized Enterprises (SME): Gage Products as a Case Study

Much of the literature on innovation focuses on large companies - Toyota, Google, Microsoft, Procter & Gamble, Seagate, etc. However, the future strength of our economy depends on the successful growth of small- and medium-sized enterprises (SMEs), where much less research has been conducted and much less attention has been provided in case studies.

A step toward filling that gap is found in a June 2006 study, "PRODUCT AND SERVICE INNOVATION: FINAL REPORT" (PDF) by David Cheney, Sushanta Mohapatra, P. Shapira, Y. Youtie, E. Lamos, and A. Bhaskarabhatla, SRI International and Georgia Tech Program in Science, Technology and Innovation Policy. This report examines examines innovation in product and service offerings for SMEs, with Georgia in mind. Early in the report we get a reminder about the importance of innovation for economic success:

A survey of Georgia manufacturers conducted in 2005 found that fewer than 10 percent of Georgia manufacturers compete for customers through innovation or new technology compared with more than twice that amount competing through offering low prices. Yet innovative companies are much more profitable and pay on average $10,000 more in average wages (Youtie, et al., 2005).

Later we have several case studies that show how SMEs need to be flexible as they pursue innovation. For example, consider Gage Products a Michigan manufacturer of specialty paints and chemicals. They used to focus on providing paint products for auto makers. But when they developed "Cobra," an environmentally friendly product (no methylene chloride) for cleaning paint circulation systems, it sparked a series of business model innovations.

Cobra was an innovation in the product space. However, the unique nature of this product innovation catalyzed major transformation in the firm’s business model. Prior to the introduction of Cobra, most plants used methylene chloride to clean paint lines. But, for environmental reasons, plants needed to adopt a replacement for this heavily regulated material. Gage introduced Cobra as a non-chlorinated material that started mechanical cleaning of the lines as an industry practice. The product was new to the market, and needed certain technical expertise at the plants. Seizing the opportunity created by stringent environmental regulations and Chrysler’s urgent need to improve the use of solvents, Gage changed its business model from purely selling solvents to providing consulting and technical assistance in implementing new solvents and cleaning systems. Gradually Gage moved up the value chain to provide complete paint system maintenance for plants resulting in cost savings, better paint selection and lower solvent use leading to reduced environmental footprints of their clients.

Apart from onsite consulting on paint maintenance systems, Gage developed a refining process to recycle millions of gallons of purge solvents which would otherwise end up in landfills. Today, Gage collects the purge solvents from clients, purifies in a large distillation system, and returns almost 70 percent of the purge solvent as clean reusable solvent to the plant. The byproduct is used as fuel for making cement. This process innovation in the form of recycling solvents has led to environmentally sustainable new products and applications, reduced cost and improved productivity at automobile plants.

In order to fully embrace these innovations, the firm had to fight resistance from inside and from the clients. Gage employees and plant employees had to be educated to relinquish age-old paint practices and adopt new techniques and products. Gage redefined basis for pricing and profits in contractual agreements. The company also changed the sales incentive system to focus away from volume of solvents sold to emphasize cost savings for the client in the paint shop.

A great example of what can happen when a flexible company thinks beyond improved products and rethinks the business model in terms of new offerings across the entire supply chain. Many times an innovative product can create opportunities for business model innovation as well.

When you've got a hot innovation, view it as the beginning, not the end!

2009 Wisconsin Technology Achievement Awards from the MIT Club of Wisconsin

The recipients of the 2009 MIT Club of Wisconsin Technology Achievement Awards have just been announced.

• Individual: James Hyde, Department of Biophysics, Medical College of Wisconsin


• Small Company: Paradigm Sensors, Impedance Spectroscopy, Milwaukee


• Large Company: Orion Energy Systems, Energy Efficiency & Directly Renewable Technology, Manitowoc


• Special Award: Venture Center @ Fox Valley Technical College, Appleton

This is very exciting news for me, for I had the privilege of nominating Orion Energy Systems, based on the impressive experience I had there in interviewing company leaders and touring their operations to develop a case study of excellence in a chapter of the forthcoming book, Conquering Innovation Fatigue: Overcoming the Barriers to Personal and Corporate Success by Jeff Lindsay, Cheryl Perkins, and Mukund Karanjikar (John Wiley & Sons, July 2009).

I've also worked with Fox Valley Technical College and am highly impressed with their Venture Center and the FABLAB at FVTC - one of the finest such facilities in the nation.

The Tech Awards will be held on Friday, March 13 at the Country Springs Hotel, 2810 Golf Road, Waukesha, WI starting at 5:30 pm. The keynote speaker will be Sherwin Greenblatt, MIT, Co-Founder & Former President of BOSE Corporation.

I'm planning to be at the awards dinner. This will be quite a treat!

Register for the event today at:
https://alum.mit.edu/smarTrans/register-login.vm?eventID=28721&groupID=195

Metrics for Innovation

One of the major challenges any company faces in driving innovation is finding the right metrics to gauge performance and progress. What gets measured is often what's easiest: aggregate, bulk measures of output or input, such as number of patents filed, number of patents filed, research dollars spent, number of people in innovation. However, measures of what's happening inside the innovation community may be more meaningful. How well aligned are your innovators with the strategy of your corporation? How well connected are they to marketing, sales, and consumer insights? What is the nature of the innovation ecosystem? Do incentives for individuals and teams align with overall objectives? Do employees have a robust "will to share" that motivates them to share their best thinking and ideas with you, or is the faucet closed and they are just going through the motions? Metrics are needed that assess innovation health and vitality in ways beyond patents and dollars.

Innovation metrics was a vital topic at the last CoDev workshop. In fact, I had the pleasure of being part of a workshop on open innovation metrics, where I revealed the psuedo-etymology of "metrics" as "me" (for individual accountability) + "trics." The "trics" can refer to deception, as often happens with misleading metrics, or it can refer to best practices and tricks of the trade based on learnings and experiences of others, which was a big part of what we shared.

If you're interested in learning more about what we shared and discussed on open innovation metrics, let us know, A white paper is in the works. It's also an important part of the new book due in July, Conquering Innovation Fatigue: Overcoming the Barriers to Personal and Corporate Success by Jeff Lindsay, Cheryl Perkins, and Mukund Karanjikar (John Wiley & Sons, July 2009).

Innovating with Wisconsin Universities: Feb. 19 Presentation in Appleton

"Tapping into Statewide (Wisconsin) Academic R&D Assets" is the topic of a presentation to be held Feb. 19 in Appleton, Wisconsin at the Bordini Center of the Fox Valley Technical College. Here is the announcement I just received for this meeting:

An overview of Wisconsin’s competitive but threatened “edge” in academic research and development will be the topic of the Feb. 19 meeting of the Wisconsin Innovation Network Northeast Chapter.

The event will be held at the D J Bordini Center, 5 Systems Drive, near the Fox Valley Technical College campus in Appleton. Registration and networking begin at 4:45 p.m. The cost is $5 for WIN members, $10 for non-members and included with WIN corporate memberships. To register, go to www.wisconsintechnologycouncil.com.

Linda Freed, director of the UW-Oshkosh Office of Grants and Faculty Development, will join Wisconsin Technology Council President Tom Still in a discussion of “The Wisconsin Edge: Academic R&D” and how businesses can tap into Wisconsin’s research assets. Other speakers to be announced soon.

In today’s “knowledge economy,” university-based research is a key component of entrepreneurial activity. In the nation’s most vibrant technology hubs, research universities emerge as important drivers of technology creation and transfer.

Wisconsin’s largest academic research hub is the UW-Madison, but the state is also home to other R&D centers such as UW-Oshkosh that tend to be underutilized tech transfer assets. Without a broader and more regional foundation in academic R&D, Wisconsin will find it difficult to pursue a robust, high-tech “knowledge-based” economy for the 21st century.

“Thanks to decades of investment in people and facilities, Wisconsin has developed a strong base for academic R&D, but it’s time to broaden that base,” Still said. “An upcoming Tech Council report will conclude that a decade-long slide in state support for the UW System could hamper the state’s ability to attract merit-based R&D grants and to promote technology transfer, which creates high-wage, private-sector jobs.”

WIN is the membership affiliate of the Tech Council, with six chapters statewide. To learn more or to join, contact Liz Schrum at 608-442-7557 or at lschrum@wisconsintechnologycouncil.com.

Disruption Innovation with Fungus: SIx Ways Mushrooms Can Save the World

Mycologist Paul Stamets gives an incredible presentation about the power of fungus. These organisms offer a powerful paradigm to help us understand social structures and social innovation as we build Life 2.0 with enhanced, sustainable ecosystems.

Apart from the metaphors this offers, there's some fabulous technology here. Dr. Stamets has found that insect-eating fungus can be used in a clever way - beginning with a non-sporulating form - to eradicate insects from homes. The fungus in its normal sporulating state repels insects - and they aren't easily harmed. But in the non-sporulating form, insects are attracted, consume it, and are then mummmified and killed by the fungus. It becomes sporulating after eradicating the insects, creating a repellant that keeps new colonies away. There is a major disruptive innovation here relative to traditional pesticides. The amazing pharmaceutical power of some rare fungi also demand further attention. And then there is the bioremediaton power of fungus. One of several great applications. Wow!

Disruptive Innovation and the Legal Profession: Coming Soon to a Firm Near You?

Sagacious comments about the future of the legal profession are offered by IP strategist Jackie Hunter in her article, "Without Disruptive Innovation, Many IP Law Firms are Destined to Meet the Same Fate as Buggy Whip Manufacturers." Jackie argues that change is in the air, and that law firms must reconsider the business models and begin innovating, or they will face disruptive innovation themselves. As we learn from the history and theory of disruptive innovation, by the time incumbents feel the pain creative by disruptive innovators, it will often be too late to respond effectively.

A possible upside to the recent economic downturn is that many previously accepted business models are being revealed as in need of substantial reinvention or even total elimination. The billable hour/leverage law firm model for legal services is one of these increasingly maligned business models, and is now appearing to be in danger of ending up in the dustbin of history. Specifically, even those who benefit handsomely from the billable hour . . . now realize the fundamental irrationality of charging a client for time spent instead of value provided. This alone should signal that change is in the air. [Read more . . .]

Jackie is a seasoned expert in intellectual property strategy, and I'm pleased to add her outstanding blog, IP Asset Maximizer, to my blog roll.

Open Innovation at Johnson & Johnson

Paul Stoffels of Johnson & Johnson (Company Group Chairman, Global Research and Development) has written a column calling for more open innovation: "Collaborative innovation for the Post-Crisis World. Brief excerpt:

At Johnson & Johnson, we are shifting our innovation ecosystem toward an open innovation model, tapping into both institutes of scientific excellence and our own research and development centers across the world.

Our scientists are taking a networked approach across internal organizational disciplines and geographies, including Asia and other emerging markets, and increasingly with external public and private partners to generate ideas and intellectual property. By working with experts at other companies, universities, and research institutes, we tap a wider range of expertise, capabilities, and resources. Together we share in both the benefits and costs of innovation that will yield more useful technologies and solutions that will contribute to new advances in healthcare.

Protection of intellectual property is critical to gaining new knowledge and economic benefits within the open innovation model. Sufficient intellectual property protection has been necessary for the private sector to justify investments in high-risk research. But in the landscape of open innovation, co-creation involves sharing the costs and benefits of innovation and the resulting intellectual property, in line with the relative contribution of the various parties, including royalties from the commercialization of new products. In this model, intellectual property rights can be ensured through appropriate and harmonized protection strategies that are agreed upon by all stakeholders.

I think he's absolutely right. These principles apply not just to pharma, but to most fields of business. Collaboration and co-development are key.

Driving Innovation Through Acquisition: Watching Unilever

Companies looking to expand into new areas typically seek to acquire an existing business to give them a head. This can be especially logical when the new area is a strategic fit with corporate strategy and involves a rapidly growing area such as health care, where time is of the essence and rapid momentum is often needed to compete. But there are numerous risks in this path, including the risk that the new company won't have a culture that fits effectively with the acquiring company, that the distribution system or other aspects of the company don't fit with the capabilities of the acquirer, and that the technology and brand is not as effective or as protected as believed.

One case study worth watching is that of Unilever's acquisition of TIGI, owner of the Toni & Guy hair products line in Europe. Unilever has been shedding companies in many other areas, and this acquisition shows its intent to grow rapidly in the haircare area. The TimesOnline article for this story provides some interesting insights into Unilever's strategy. It will be interesting to see if they succeed or end up withdrawing from this area in the next three years, or require further costly acquisitions to gain momentum.

Growth is easy to drive by acquisition, but what about innovation? Their success here will require continued innovation or they will quickly be outpaced by others. Will Unilever develop the skills and personnel to drive innovation success in haircare? Is the acquisition designed to continue the innovations behind TIGI? We'll know in the near future....