Example of cool design

As regular readers of this blog will note, I have often talked about the importance of design as a competitive edge. In that vein, I have to pass along this example of cool design (from GizMag – the magazine devoted to new gizmos — a great read for everyone like me who really is an engineering geek at heart).

Outdoor solar workstation:

If you are having trouble getting out of the office, maybe it’s time to get the office out. This funky, eco-friendly workspace by Mathias Schnyder is designed to be a calming haven where office dwellers or uni students can escape to the great outdoors.
The modular workstation comes equipped with a solar cell in the roof that can generate enough energy to power a notebook via an electric socket in the center of the table. The seating comprises different movable segments so people can sit next to each other or across from each other if they need privacy. Additionally, the seating design means users can reduce exposure to wind and sun.
Its materials and form mean this workstation would sit well in a city park (where it might be mistaken for playground equipment), office lawn or on a college campus – any urban outdoor setting really. No details yet on whether the design will see a commercial release, but any concept that combines fresh air, productivity and green energy deserves applause.

The perfect workspace for the I-Cubed Economy worker? One downside to all this, however. As the story relates, it is not yet in commercial release.

Branding and the bashlash of the backlash

For those of you who don’t live 24/7 in the blogsphere, you may have missed the latest flare up in reputation management — Rachael Ray’s scarf. Here is a summary of the controversy from the NewYork Times:

On May 7, Dunkin’ Donuts began running an ad on its Web site and others, featuring the celebrity chef Rachael Ray holding a cup of the company’s iced coffee while wearing a black-and-white fringed scarf. In the ad, which was shot in a studio, she is shown standing in front of trees with pink blossoms and a building with a distinctive spire.
On May 23, the conservative blog Little Green Footballs posted an item that likened Ms. Ray’s scarf to the type typically worn by Muslim extremists. The blog said that the ads “casually promote the symbol of Palestinian terrorism and the intifada, the keffiyeh, via Rachael Ray.”
Later that day, the conservative blogger Michelle Malkin chimed in, likening the scarf to a keffiyeh and calling it “jihadi chic.” Then the story, as they say on the Internet, went totally viral.

Dunkin’ pulled the ad. But the controversy continued. As the story relates:

From there, a backlash to the backlash started to take hold.
An item about the controversy had more than 2,300 votes and 830 comments on Digg, a news aggregation site. A YouTube video, “Rachael Ray Is a Terrorist,” poked fun at the situation, with the narrator saying, “Yes, because when I look at Rachael Ray I think 9/11.” That video drew more than 2,300 comments, and a related story on The Huffington Post had more than 1,200 comments.

Sometimes the most trivial things – like a scarf – can trigger strong emotions. In this interconnected virtual world, emotions can travel faster than facts. Think of all those “urban myth” stories that pop up in your email inbox. Many times they are circulated and accepted because they strike some emotional response — a warning of some fear, something cute we want to share.
For Dunkin’ the controversy may be a net gain, in the form of a huge amount of free advertising. And it is not clear that the advertising was negative. There appear to be more folks outraged with the conservative’s attempt to blow this up into some fear-mongering political statement. As Bob Parson, the head of GoDaddy.com, was quoted in the story, “You need to find and do something that is a bit edgy, that is polarizing, that provides some water-cooler conversation.”
I’m not sure I agree with that — there is already too much polarization in our society. But, I will have to think about it over my cup of Dunkin’ coffee.

Unleashing IP — in a new business model

Here is a great quote from an article in the Booz & Company (formerly Booz-Allen) magazine Strategy+Business (registration required) — Uncaptured Fortunes in Intellectual Property

It’s the subtle little secret of the corporate revenue stream. Executives now recognize that intellectual property (IP) makes up the bulk of an organization’s wealth, and most chief executives will glibly claim that IP is the key to competitive advantage. Yet most CEOs pay no attention to leveraging or drawing income from those assets. How can they? Few even know what IP their company owns.
To be fair, companies have gotten wise to the sometimes significant revenues that can be gained through patent and technology licensing. In fact, by most estimates, annual revenues for such licensing have exploded from US$15 billion to $110 billion worldwide over the last 15 years. For many companies, however, that’s the easy part; the real challenge is to make their intellectual property serve the business, not be the business — that is, to benefit from valuable IP at the business unit level, where corporate strategy intersects with customers and markets. Unfortunately, very little historical knowledge or experience is available to guide executives in generating commercial advantage from what is in reality an entirely new class of assets. (emphasis added).

Ain’t that the truth. The author, David Kline of Rembrandts in the Attic fame, makes an important point I heard a number of other places as well: IP tends to be the purview of the legal department. As such, it is all about locking up the ideas, rather than exploiting them.
But that need not always be the case. Kline gives a case example where GE was able to exploit a remote turbine servicing technology by creating a new business model:

It devised an entirely new business model for its remote technology, one that leased it to customers while simultaneously licensing to them the associated IP and service procedures. GE would retain ownership of the hardware, blocking encroachment by competitors and enjoying significant licensing revenue. Moreover, GE would also retain rights to customer data from this system, which would enable the company to leverage everything it learned from operating and servicing 300 gas turbines globally to build a “predictive intelligence” platform for delivering service and supply chain improvements to the utilities. This vital intellectual asset was a key differentiator for GE that no competitor could match.
Finally, because the technology would be protected by license, GE could share proprietary knowledge about turbine operation with the utilities, allowing them to make their own adjustments to the equipment to boost performance and stability.

What I find so fascinating about this example is only in part that it utilized IP. The real fascination is the business model that fused manufacturing and services. If US companies are going to survive in the I-Cubed Economy, this type of fusion needs to become the norm — not the rare case study.

Brand reputation and micro management

One of the holy grails of brand reputation management has always been consistency of the product. You want the McDonalds hamburger in one store to taste the same as in other stores. Some local variations are allowed (I remember how McDonalds french fries tasted different in Thailand because they used different cooking oil).
But, as a recent Washington Post story on gas prices points out, that can lead to a tight reign rein on local stores:

Jerry Daggle owns five Exxon stations in Northern Virginia, and even though they have different competitive conditions and prices, “Exxon magically lets me make about 8 cents a gallon” at each one, he said.
He said micromanaging extends to the snacks sold at Exxon’s On the Run convenience stores. The company uses a “planogram” to show dealers where to put candy bars and soda. “If I want to put Coke on a different shelf, I have to get special permission,” Daggle said. Recently he was reprimanded for selling mulch on the perimeter of his award-winning Gainesville station; the mulch, though popular in the neighborhood, wasn’t an approved product.

This micromanagement wouldn’t be such an issue in the old days of the Industrial Age. In fact, it was de rigueur. In the I-Cubed Economy of customization (‘just-in-time; just-for-me”), it can be a major problem. At the very least, it can mean lost opportunities by allowing hot selling products — like mulch in Gainesville. As worst, it can mean retail failure as the product mix doesn’t match the local demand characteristics.
The trick is how to simultaneously maintain the basic characteristics and quality of a product which underlie the brand’s reputation and embrace local variations. Notice that I did not say “balance” these two objectives. They should not be seen as opposites to be traded-off. Years (and years) ago, this was described by Peters and Waterman (In Search of Excellence) as “simultaneous loose-tight.” Maybe companies need to resurrect that concept for the I-Cubed Economy.
PS – for a nice take on the continued relevance of In Search of Excellence, see “In search of …?” by Mike Johnson (head of Futurework Forum).

Debating globalization and competitiveness

Yesterday there were two events on globalization and competitiveness:
• a hearing in the House Science Committee on American Decline or Renewal? – Globalizing Jobs and Technology; and,
• the Commerce Department’s 2008 National Summit on American Competitiveness.
Both addressed similar issues from different perspectives — and very different perspectives on the issue of trade agreements. But, from my attempt to listen to the two webcasts simultaneously, it appeared that they both agreed that we need to raise the profile of the competitiveness issue in the national debate. They both also talked about the need for an overall policy on competitiveness (something that we don’t have now). I wish, however, the business leaders at the competitiveness summit would have stopped treating the trade issue as simply a PR problem and gotten to the real issues. By the way, my eyebrows went up when the Commerce Secretary said we have a “big budget” for trade adjustment assistance. Our worker adjustment system is woefully inadequate and underfunded.
More materials (including the archived webcasts) are available at links noted above.

New NAS report on Innovation in Global Industries

The National Academies (the National Academy of Science, National Academy of Engineering and the Institute of Medicine) has a new report out — Innovation in Global Industries: U.S. Firms Competing in a New World (Collected Studies):

The debate over offshoring of production, transfer of technological capabilities, and potential loss of U.S. competitiveness is a long-running one. Prevailing thinking is that the world is flat that is, innovative capacity is spreading uniformly; as new centers of manufacturing emerge, research and development and new product development follow.
Innovation in Global Industries challenges this thinking. The book, a collection of individually authored studies, examines in detail structural changes in the innovation process in 10 service as well as manufacturing industries: personal computers; semiconductors; flat-panel displays; software; lighting; biotechnology; pharmaceuticals; financial services; logistics; and venture capital. There is no doubt that overall there has been an acceleration in global sourcing of innovation and an emergence of new locations of research capacity and advanced technical skills, but the patterns are highly variable. Many industries and some firms in nearly all industries retain leading-edge capacity in the United States. However, the book concludes that is no reason for complacency about the future outlook. Innovation deserves more emphasis in firm performance measures and more sustained support in public policy.

The internet sales tax

Lee Gomes’s “Portals” column in today’s Wall Street Journal takes on the issue of Internet sales taxes — but not the way you might think:

Now, chances are you’ve ordered a tax-free book or two from Amazon, and enjoyed the experience. No one likes paying taxes. But this particular tax break is an especially pernicious one.
For starters, by giving online businesses a permanent advantage over their bricks-and-mortar competitors, it helps those who need it least — huge, profitable e-commerce companies — at the expense of often-struggling local retailers.
In addition, the tax policy is regressive. It disproportionately benefits the upscale citizens most likely to shop online. Worst of all, as commerce increasingly moves online, state and local governments are being deprived of the sales-tax revenues they rely on to run schools, build roads, pay police and firefighters, and do all the other things they’re supposed to do.

By the way, Gomes is specifically taking aim at Amazon’s challenges to new Texas and New York State laws requiring them to collect the sales tax.
The second point in his argument is one I have made before as well — not collecting sales tax on Internet purchases is a tax subsidy for e-commerce. It is not a “technology” neutral policy — but a very clear technology subsidy (imagine if some one suggested that anyone who drives a car to pick up a purchase should be exempt from sales tax on those purchases).
I think the last point in this argument is the most telling. We can easily get in to a tax competition as a race to the bottom (which is what the anti-tax, anti-government folks would love us to do). Simply eliminating the sales tax might be a great idea (it is a relatively retrogressive tax). But without some other form of revenue, local government services are in danger. As Gomes states:

Many Web users surely will be annoyed by a tax. It’s common to see the Internet as a refuge from the quotidian annoyances of the real world, among them death and taxes. But cyberspace is grounded in the real world, as are schools and parks and streets. If you doubt that, the next time your house is on fire, try calling Jeff Bezos.

Well said.

The dangers of earnings management

While we are on the subject of earnings management, let me highlight today’s Washington Post column by Steven Pearlstein — Leap of Illogic on Wall Street Leaves GE Flat-Footed — on the dangers:

Over time, this strategy has made GE the stock to own for long-term investors looking for “a safe and reliable growth company,” as [GE CEO Jeff] Immelt likes to put it. Unfortunately, under his predecessor, this wonderful reputation somehow got transformed into a solemn promise to deliver double-digit earnings growth every quarter, and to do so in a way that precisely matched the earnings guidance provided by the company. To meet those expectations, GE has become suspiciously adept at booking revenue and expenses and timing asset sales to meet earnings estimates with amazing precision and consistency.
The extent of this earnings management was revealed last month when an embarrassed Immelt explained that GE’s failure to hit its quarterly number was a result of the credit crisis, which in the past two weeks of the quarter had suddenly and unexpectedly reduced the market value of securities holdings and prevented it from completing anticipated real estate sales. But rather than acknowledging the folly of predicting quarterly results in the midst of a financial panic and worldwide economic downturn — particularly for a company reliant on financial services and “lumpy” industrial sales — Immelt prostrated himself before analysts and promised it would never happen again.

The problem Pearlstein notes, however, is that this strategy can come back to bite you:

Having decided that GE’s earnings surprise was the result of flawed corporate strategy, it was easy for Wall Street’s analysts to take the next leap of illogic and conclude that salvation could come only from buying and selling assets. That, by coincidence, just happens to be the only course that generates fees for Wall Street brokers and investment bankers. If Immelt had dared to tell them the truth — that he needs the cash generated from some of these maturing businesses to invest in new markets and new technologies for the long term — he would have sent GE shares into a tailspin.

Pearlstein is clearly frustrated with the way Wall Street treats such companies:

Immelt has the right strategy for General Electric, and he’s the right man to execute it. But he risks being frustrated in his efforts if he cannot transform his company’s relations with investors and opt out of the mindless earnings-expectation game. General Electric didn’t become a great company just by buying and selling assets — it did it by creating innovative products and continually finding better ways to produce them. It won’t remain a great company if it allows stock flippers and Wall Street analysts to distract it from its mission.

Right on: I have argued the same point in numerous posting on this blog. The problem is what to do about it. In part, it is a case of corporate relations. Watching a recent CNBC special on Warren Buffett, it was clear that he has done a masterful job of picking his stockholders by encouraging long term investors and discouraging short termers. Of course a Class A stock price of $100,000 helps in that regard – and it has not stop some from shorting the stock. It just means that Buffett doesn’t worry about the short term movement in the stock. But not everyone is a Buffett.
There is the United Technologies Corporation approach to highlight the company’s reputation and intangibles. UTC undertook a systematic effort to let Wall Street know about all the various aspects of their business and the strength of their intangibles.
Then there is the option of going private. Some have suggested that the best way to keep a company innovative to take the company away from Wall Street (for example, see The Gartner Fellows: Clayton Christensen’s Interview Part 1). This can be either through the existing private equity markets (at the risk of debt-overloading) or these new private trading markets.
Ultimately, there is the systemic issue of speculation. Speculation will always be a part of markets (a necessary part some would argue). But the issue is whether speculation or long term investment drives the market price. My preference is for long term investment. When speculators drive markets, markets fail — they turn into bubbles. But I would not ban speculation. My favorite solution is the sliding scale capital gains tax. Tax short term profits at a much higher rate than long term returns. That would help discourage the stock-flippers Pearlstein (and others) worry about.

Changing nature of supplier relationship in IT

Is IT becoming just another supplier relationship? According to a story in today’s Wall Street Journal – Competitive Approach Taken to Outsourcing, that seems to be what is happening:

The shift marked one element in a broader transformation in the IT-services industry: Rather than simply handing over the keys to the tech department to one provider, businesses are increasingly signing shorter outsourcing deals with multiple firms that have employees around the globe. Often, they hire multiple firms to work on the same project.

Years ago, the business mantra was get close to your suppliers. Then came the “china price” — low cost sources from China in manufactured goods and India in IT services. Companies got close enough to their suppliers to say “match the price or I am out of here.” IT did the same, but still in the traditional way of large multi-year contracts. That appears to be changing. Is the result making IT services just another commodity (as Nicholas Carr argued a few years ago)?

Lessig on new orphan copyright bill

Larry Lessig on the pending “orphan works” copyright bill — Little Orphan Artworks – New York Times

The solution before Congress, however, is both unfair and unwise. The bill would excuse copyright infringers from significant damages if they can prove that they made a “diligent effort” to find the copyright owner. A “diligent effort” is defined as one that is “reasonable and appropriate,” as determined by a set of “best practices” maintained by the government.
But precisely what must be done by either the “infringer” or the copyright owner seeking to avoid infringement is not specified upfront. The bill instead would have us rely on a class of copyright experts who would advise or be employed by libraries. These experts would encourage copyright infringement by assuring that the costs of infringement are not too great. The bill makes no distinction between old and new works, or between foreign and domestic works. All work, whether old or new, whether created in America or Ukraine, is governed by the same slippery standard.

As a result, “The only beneficiaries would be the new class of ‘diligent effort’ searchers who would be a drain on library budgets.”
So, once again, is Washington about to create another Experts Full Employment Act?
Lessig does have a solution:

Congress could easily address the problem of orphan works in a manner that is efficient and not unfair to current or foreign copyright owners. Following the model of patent law, Congress should require a copyright owner to register a work after an initial and generous term of automatic and full protection.
For 14 years, a copyright owner would need to do nothing to receive the full protection of copyright law. But after 14 years, to receive full protection, the owner would have to take the minimal step of registering the work with an approved, privately managed and competitive registry, and of paying the copyright office $1.

Pattern copyright after patent law? Interesting. (And who says this guy is anti-IP?)