Jan 31, 2012

More Effective Financial Incentives

Over the weekend I had a long discussion with a friend about Occupy Wall Street and what is wrong with our corporations. A few themes emerged that may actually be interesting for R&D management as well.  It has been shown that executive remuneration has grown much faster than average worker.  It is also felt that the pay is disproportionately large.

A key problem with driving executive performance is the inability to tie pay to performance.  Decisions made by executives have impact months (if not years) later.  So, rewards based on current stock price do little to guide executive performance.  Traditional approach has been to provide stock options that vest over a long period.  However, stock options have shown to be ineffective in driving performance.  This is mainly because the vesting of options does not have a direct relationship to the decisions made by the manager.  Stock price in the  future will depend on performance across multiple products. Furthermore, options will vest either with time, no matter what happens in the future.

So, here is a proposal: Why not tie rewards to performance based on actual performance of new products developed by a set of executives?  R&D executives are responsible for deciding which products to develop and how.  The primary and largest reward could be a fraction of the profits generated by these products when they actually reach the market (True Profit Sharing).  Most organizations develop (and maintain) a business case for pursing any new product.  Hence the executive reward can be built directly into that business case.  Boards of directors can monitor performance using the same business case.  This approach ties rewards to actual decisions executives make on new product development.

One concern of this approach might be that True Profit Sharing will generate bonuses over a long time frame.  Executives are also responsible for managing  R&D execution, operations and guiding sales. So, We need other bonuses that encourage performance for near and mid-term.  To do that, we can tie a part of bonuses to operational effectiveness:
  • Health of R&D pipeline (various metrics can be used) generates annual rewards (bonuses)
  • Cost and schedule performance of each new product generates near-term rewards
  • Third party reviews and market reaction when the product is introduced contributes to mid-term rewards
We can construct similar approaches for marketing, sales, manufacturing etc. This model has the advantage that each decision has direct consequences to rewards.  Just a thought...

A wake-up call for Big Pharma

Another interesting article in the McKinsey Quarterly "A wake-up call for Big Pharma" describes how big pharmaceutical companies are becoming less innovative. We had discussed the same trend in the past (Big Pharma's Stalled R&D Machine). This chart from the article has great data about declining contribution of new products to the bottom line:

Some more evidence of this lack of innovation is in the Booze's Global Innovation 1,000 list which does not rank pharma companies as very innovative.  The article further suggests that some fundamental changes are necessary:
The good old days of the pharmaceutical industry are gone forever. Even an improved global economic climate is unlikely to halt efforts by the developed world’s governments to contain spending on drugs. Emerging markets will follow their lead and pursue further spending control measures. Regulatory requirements—particularly the linkage among the benefits, risks, and cost of products—will increase, while the industry pipeline shows little sign of delivering sufficient innovation to compensate for such pressures.
The article suggests that the pharmaceutical industry might evolve away from vertically integrated model like the automotive industry.
A look at the evolution of the automotive industry may offer some lessons. For many years, it was vertically integrated and dominated by large, primarily Western corporations. But the value chain has been disaggregated into companies specializing in narrow parts of the process. Today, component manufacturers, design houses, and basic-materials companies share much of the industry’s revenues: the automakers are responsible primarily for the design of major components (such as engines), assembly, sales, and marketing.
This whole article is a very interesting read. I suggest you consider reading it.

Jan 30, 2012

Creating Leaders

The article The NY Jets' Mike Tannenbaum and SAP's Bill McDermott: Creating Leaders On and Off the Field in Knowledge@Wharton has some interesting pointers for all R&D managers.

1. Provide precise and candid feedback (even when negative):
"The most important thing a leader can do is give people feedback," McDermott said, recalling a meeting where an executive was complaining about a mistake made by an employee. "'What did he say when you told him about it?' I asked, but there was silence." Employees deserve the respect of candor, McDermott noted, and they need to know what is expected of them and have a clear understanding of their employer's strategy and culture.
2. Provide a big long-term vision that can get the team excited.
McDermott and Tannenbaum agreed that a leader has to focus on promoting an overall vision for his or her organization rather than dwelling on the small stuff.
"Our thing is to go big or go home," McDermott said, noting that SAP has had many opportunities to buy companies that would catapult the firm into a new business category.
3. Be careful in selecting team members and look beyond resume / technical capabilities:
"When he was on the cell phone in the car, did he treat the person on the other end with respect? ... How did he act with the waitress? Your character is what you do when no one is looking. That will make for a better team, where everyone knows what everyone else's job is, and we all work together."
Something we can all learn...

Jan 29, 2012

Booze's 2011 Global Innovation 1000

I have been meaning to post about a pretty good survey by Booze (Global Innovation 1000).  The study has a lot of useful data for benchmarks.  The overall message is very important:
As our annual Global Innovation 1000 study, now in its sixth year, has consistently demonstrated, the success of these companies is not a matter of how much these companies spend on research and development, but rather how they spend it.
Here is the data supporting the hypothesis:
For the second year in a row, Apple led the top 10, followed by Google and 3M. This year, Facebook was named one of the world’s most innovative companies, entering the list at number 10. In a comparison of the firms voted the 10 most innovative versus the top 10 global R&D spenders, Booz & Company found that the most innovative firms outperformed the top 10 R&D spenders across three key financial metrics over a 5-year period — revenue growth, EBITDA as a percentage of revenue and market cap growth.
I guess being a consulting house, Booze would like to teach organizations how to spend their cash...  But still, it is an important message.  We need a culture that supports innovation and strategic alignment of innovation with goals (duh!).
Every company among the Innovation 1000 follows one of three innovation strategies — need seeker, market reader, or technology driver. While no one or another of these strategies offers superior results, companies within each strategic category perform at very different levels.  And, no matter a firm's innovation strategy — culture is key to innovation success, and its impact on performance is measurable. Specifically, the 44 percent of companies who reported that their innovation strategies are clearly aligned with their business goals —and that their cultures strongly support those innovation goals — delivered 33 percent higher enterprise value growth and 17 percent higher profit growth on five-year measures than those lacking such tight alignment.
Here is some interesting commentary from 24/7 Wall ST:
The overlap of these “innovators” with the firms that spent the most money on R&D last year is small.
The difference between the two lists is that the largest spenders mostly invest dollars to stay in the places they already hold in the business world. Pharma companies need to replace drugs that are about to come off patent, or already have. Old world tech companies like Microsoft and Intel need to keep pace with firms that have new successful hardware and software products that challenge their sales. Auto companies are in a race to make their cars and light trucks safer and more useful to consumers.
May be it is just the industry companies are in and the maturity of the market place:
It is easy to believe that the companies growing the fastest and with the most attractive products to consumers and businesses are the most innovative. This will not last for those firms. Eventually all companies spend R&D money to hold their positions within their industries. It is just a matter of the age of the each company’s products and the state of new competition, which is always entering the market — often aimed at the innovators with sharply growing sales.
So, do we believe that all the current innovators will remain innovative for the foreseeable future?  Probably not:
But Apple, Facebook, and Google are only a few years away from the need to spend R&D money to hold their own rather than advance rapidly within their own industries. Almost no one believes it about Apple, but eventually there will come a time when its revenue growth is no longer in the high double digits. Google’s products like
I guess every on believes that Apple will be an exception!  Even without Steve Jobs?

Jan 25, 2012

Risks of government investment in innovation

We have often talked about the role of the government investment in driving innovation (and here).  We had identified the risks of government investment as corruption and inefficiency.  We had also discussed potential solutions: 1) Have a large number of industry participants competing for government investment and 2) address smaller industries such as wind power for innovation investment (as opposed to large fixed cost industries such as high speed rail).

The article How do we know that China is overinvesting? by Prof. Pettis has one additional major risk - lost economic value.  The article discusses large investment made by the Chinese government in the electric car industry:
The electric car industry was often Exhibit A in the argument that Chinese investment was in the aggregate rational and economically sensible. This industry is clearly the industry of the future, the China bulls argued, and China’s massive investment in the technology, which would allow the country to dominate one of the key sectors of the future, showed why it was mistaken to complain about capital misallocation. This kind of investment was actually very clever stuff.
Prof. Pettis points out two major concerns about the investment:
  1. Whether the total economic costs of investment are less than the total economic benefits: Innovation should create additional wealth for the country that more than offsets the government investment.
  2. Whether there is a mismatch in the timing of costs and benefits: Even if the value generated is positive in the long-term, it might be negative for short to medium term and harmful to the economy.
These are good question to ask, but probably difficult to answer effectively.  Computing economic value of an innovation investment is likely expensive.  It would be difficult to build a business case to invest in the effort to compute economic value.  However, the key problem that the article identifies is very valid:
... risky high-technology ventures are not best funded and directed by companies, industries and policymakers who are historically weak in the technology sector, especially when they have no shareholder or budget constraints and have almost unlimited access to heavily-subsidized capital. This seemed to me a recipe for wasted investment."
After the significant thrust by the Chinese government in electric vehicles, the reality set in - there was no market for the electric vehicles.  Instead of redirecting the innovation investment, the government tried to compensate for it through regulation:
...a directive signed by four government ministries encouraging 25 pilot cities, including major markets such as Beijing and Shanghai, to “actively study” exemptions for electric cars from license plate lotteries and auctions, as well as a host of other purchase restrictions.
Hence, the industry was propped up:
The only way to make electric cars economically viable in China, in other words, is to put into place administrative measures that divert buyers, but as any economics student can tell you, these kinds of administrative measures simply shift resources from one sector of the economy to another without creating wealth. In fact because they force consumers to choose something that they otherwise wouldn’t, they actually reduce overall wealth.
One way to justify this additional regulation could be reduced emission / pollution.  But the fact that the regulation was not planned in the first place, and is being considered solely to account for lack of market demand reduces the efficacy of that justification.

So, we could add a couple more solutions to our list: 3) Target small businesses for the bulk of the innovation investment; 4) Focus on investment, not regulation to promote adoption of innovation; and 5) if regulation is necessary, plan for it upfront while deciding the investment.

Jan 24, 2012

Large vs. Small Team Performance

Knowledge@Wharton Research Roundup has some interesting learning about team performance.  Increasing team size improves performance, but reduces team member satisfaction:
When it comes to teams, less is sometimes more. In a recent paper, Wharton management professor Jennifer Mueller found that while larger teams generally are more productive overall than smaller ones, members of the bigger groups were less fruitful individually than their counterparts on the smaller teams.
There are thought to be three major challenges to effectiveness of large teams:

  1. Motivation loss: Being one of the members of a large team could reduces the sense of ownership, and hence reduce motivation to perform.
  2. Coordination loss: Larger the team, bigger the effort required to coordinate activity.  This would reduce overall efficiency of the team.
  3. Relational loss: Large number of people involved prevents members from forming deep relationships.  This lack of networks reduce collaboration and efficiency.
Based on study of 26 teams with 238 team members, the author found significant support for challenges 2 and 3 (but not for 1).  The article of team satisfaction has potential solutions to these challenges.

Jan 23, 2012

Innovator's DNA: Some are born, others can learn

A couple of related articles in INSEAD Knowledge (Innovator's DNA and Innovator's DNA: Some are born, others can learn) are quite interesting:
Some people are born innovators. Others can become innovators, providing they follow some simple guidelines. That's the thesis of 'The Innovator's DNA', just published by Harvard Business Review Press, by Hal Gregersen, INSEAD Senior Affiliate Professor of Leadership, with Jeffrey H. Dyer of Brigham Young University and Clayton Christensen of Harvard Business School."
The premise is that we can all learn to be more innovative:
Research involving identical twins suggests that only about 20-25 per cent of our creativity ability is geneticically driven. “This means the other 75-80 per cent comes from the world we live in...
 Here is my takeaway about five skills that can make us more innovative:
  • Observing: Innovators are "intense observers." They learn from observing others.
  • Questioning:  Innovators ask questions about what they have observed to find out if there is a better solution. 
  • Associating: Innovators make unexpected connections and combine known pieces into new solutions (such as iPhone or iPod).
  • Experimenting: Innovators experiment with solutions to potential problems to find the optimum.
  • Networking: "Innovators are intentional about finding diverse people who are just the opposites of who they are, that they talk to, to get ideas that seriously challenge their own."
Here is all of it put together in a nice summary:
Take notes when observing others. “Step back from (the problem or situation), talk to people: ‘What did you learn? What surprised you? What was interesting?’ If you like to talk to people, talk to somebody different: maybe on another floor, a different building, a different office, another country, but talk to somebody who's 180 degrees different from you. These are things that we can do and they don't take a lot of time to do them.”

Jan 21, 2012

Collaboration for New Service versus New Product Development

Another quick note: This one about differences between collaboration in new product development vs new service development in the Journal of Product Innovation Management (A Comparison of New Service versus New Product Development: Configurations of Collaborative Intensity as Predictors of Performance):
Collaboration among firms for innovation has received considerable attention. However, little is known about how firm-to-firm collaboration is configured in new service development (NSD) versus new product development (NPD).
The article measure the impact of 1) Good processes / communication vs 2) Good relationship / trust.  They find that collaboration on products is more effective with good processes while collaboration on services is more effective with trust.  Probably makes sense: Services are inherently unprotectatble and trust is needed to ensure the partner plays well.

Jan 19, 2012

How Fast and Flexible Do You Want Your Information, Really?

Here is a quick note about access to corporate information from the Sloan article: How Fast and Flexible Do You Want Your Information, Really?
access to corporate data in organizations is rarely as rapid as an Internet search. “Why can’t I get information on our sales just as quickly as I can search the Internet?” is a frequently overheard complaint. That frustration has led many organizations to try to speed up the delivery of data and analysis, particularly in the context of decision making (typically described as “business intelligence,” or BI). But few organizations have reached an optimum with regard to how fast important information reaches in boxes, desks and brains.
The article suggests that more information is not necessarily better:
Consulting companies that study information consumption routinely find that more than half of all standard reports aren’t being used by anyone anymore. Inflexible standard reporting means not only that paper is wasted, but that an even more valuable resource — executive attention — is misdirected.
Here are their findings:
  • The aim should be to enable faster decision making, not faster information. Focus on information speed and flexibility that facilitates that.
  • Not all information is needed equally fast, nor in equally perfect condition.
  • Executives often ask for more information than they use.
Key to success is right metrics to report so that managers can make effective decisions.  Unfortunately, this is difficult to do  - many times because other managers do not want to have their performance be easily visible.  Good points to keep in mind though.

Jan 18, 2012

Considerations for determining executive compensation

We have often discussed problems with financial incentives.  It has been shown that stock options lead to excessive risk taking.  Corporate Executive board suggest we ask the following question in Exec Comp: The Ultimate Decider:
Will this executive compensation policy provide meaningful incentives for executives to create long-term shareholder wealth without incurring excessive risk?
Their suggestion is to keep the following in mind - it is a pretty good list:
  1. Calibrating Compensation: The ideal exec comp plan is less about motivation than about providing guidance to executives as they navigate ambiguous decisions.
  2. No Silver Bullets: Do not put faith in any one policy, such as mandatory share ownership, for aligning executive and investor incentives. Use a mixture of long-term metrics appropriate for your company.
  3. Reasonable Ceilings: While setting stretch targets for annual variable cash compensation, high performers also impose a reasonable ceiling to discourage unchecked risk taking.
  4. Longer Vesting: The executive labor market is increasingly converging on longer vesting periods of four or more years.
  5. Balanced Equity Vehicles: Executives can over-optimize to any individual metric, including share price. Embrace some extra complexity to encourage a more three-dimensional view of firm performance.
  6. Objective Performance Measures: Reduce the role of board discretion in your compensation; use more objective metrics, even for soft factors like customer satisfaction and employee engagement.
Clearly this is hard to do, but as Prof. Kaplan pointed out, "If you have high power incentives, you'd better have even higher power controls."

Jan 17, 2012

Necessity is the mother of Innovation (Continued)

We have had a theme here at the blog: Innovation does not happen by accident, it requires challenges. If the external environment does not generate the challenges on its own, R&D managers have to create those challenges. Here is some more evidence to support the thesis. Last year, China clamped down on the export of rare earths metals crucial for modern electronics and motors.
The industry has responded with innovation!  The first is a rare earth-free motor from Continental Corporation that provides better efficiency than rare earth magnets without the rare earths!
As for the drive unit, Continental has opted for an externally - excited synchronous motor. Compared with a permanent magnet electric motor, this technology offers an better overall level of efficiency across the whole of an electric vehicle's operating range, and also enhances the safety of the electric drive system. In addition, no expensive rare earth metals are needed for magnets."
The new motor would have been developed regardless of the shortage of rare earths.  However, the shortage is definitely driving innovation elsewhere. A Japanese group is focusing on developing novel materials that provide rare earth performance:
A Japanese research group succeeded in producing powder of iron nitride (Fe16N2) by the gram. The group, which consists of Migaku Takahashi and Tomoyuki Ogawa, professor and associate professor, respectively, at a graduate school of Tohoku University, and researchers at Toda Kogyo Corp, succeeded in generating Fe16N2 powder with a purity of 91% and a reproducibility for the first time in the world.
This technology will have repercussions beyond replacement of rare earths. Another technology being pursued is recycling of rare earths from old components:
Hitachi Ltd developed a technology to recover rare earth materials such as neodymium (Nd) and dysprosium (Dy) from rare-earth magnets used in the motors of hard disk drives (HDDs), the compressors of air conditioners and so forth.
The company developed equipment that separates rare-earth magnets from used products and succeeded in recovering rare earth materials from the magnets by using a new method.
In summary, three new (and hopefully innovative) approaches to address a challenge posted by lack of availability.  May be we need to pose more challenges....

Jan 16, 2012

Yahoo: Bet Big, or Die

Recently Yahoo appointed a new CEO (Tim Morse).  Here are some suggestions to Yahoo from Knowledge@Wharton  in The ‘Morse Code’ at Yahoo: Bet Big, or Die: "
Hosanagar suggests that Yahoo should go back to its roots in media products. “It needs to come out with a new compelling product that is not an effort to catch up with Google or Facebook or anyone else, but instead is revolutionary. It should think about how to create that culture of innovation within and find that spark that resulted in Yahoo being formed in the first place.” Efforts to catch up or beat Google at search or email, or to compete with Facebook in social marketing, “will be misguided,” he notes. " Just like Nokia, the challenge is in developing new products.
Interesting! Just like Nokia, the answer to Yahoo's trouble is also in getting innovation to market through effective R&D.
Hosanagar notes that Bartz seemed focused on financial and organizational re-engineering. That “was fine to an extent … but she never successfully positioned herself as an innovative CEO who is seeking to bring new products and services to consumers.”
Furthermore, just as in case of Nokia, the resources and R&D teams are in place. Effective R&D management remains the most important challenge.
Morse has sufficient momentum to build on, says Werbach, pointing to Yahoo’s “valuable assets, lots of users and some very talented people.”
The mangers need to come up with a vision and challenge the R& D team to innovate.
Yahoo needs to find a strong future strategy if it wants to remain an independent company, he adds. “The very few large tech companies that have successfully turned around [such as IBM and Apple] had long-term visions that played to their unique strengths.”
However, this is very hard to do.  I wish them luck...

Jan 15, 2012

Procter & Gamble: Mastering the Art of the Innovation Tournament

Knowledge@Wharton has an interesting article Procter & Gamble: Mastering the Art of the Innovation Tournament.  P&G CEO has set up a great challenge for the company (A great way to foster innovation is for the leader to create or emphasize challenges):
Procter & Gamble CEO Bob McDonald is a man with a plan. Last year, he and his company declared a bold vision -- one that includes making all products and packaging with recycled or renewable materials, and ensuring that no waste from P&G products touches a landfill. Prominent in the vision, too, is powering all plants with renewable energy. Because all of this will take decades to achieve, P&G also declared a series of shorter-term, 10-year goals to guarantee that the company is making progress. The 2020 renewable energy goal is to power 30% of P&G's energy needs for 180 plants worldwide with renewable sources.
Interesting: the no waste recyclable product idea became accessing renewable electricity.   The challenge could have been used to drive P&G engineers to develop new innovative renewable products...  Anyway,  the energy problem was solved by an Innovation Tournament.  I am not sure if accessing renewable energy can be counted as innovation, but there are some interesting lessons in the article.

First: P&G defined a narrow scope for the brainstorming (innovation tournament).  This would help focus the discussion and help generate more useful results.

Second, P&G involved both internal and external experts in the brainstorming. There were more internal participants than external. Hopefully, this would get more internal buy-in to ideas and ease the transition of external ideas into practice.
Instead of a far-flung event like X-Prize, P&G chose a more controlled process, inviting seven external experts to propose and brainstorm solutions with a team of 20 internal experts. Common among corporations that need to protect proprietary information, this format also made sense in P&G's case "because a lot of it was about process innovation," says Favaloro. "We wanted to engage people in an ongoing process that involves interaction between internal and external teams. They needed to be steeped in the process itself, instead of the next big widget."
Third, everyone was asked to do preparatory work before the brainstorming sessions.  This not only increased the quality of ideas, but also ensured external experts' discussion was more relevant to company needs:
Moreover, significant spadework at the outset resulted in a fast-paced, productive final round in late July. To start, P&G's internal teams delivered in-depth briefs via webinar to bring the external experts up to speed on the plants so they could frame more workable, tailored recommendations. Then the outside experts submitted 150 ideas, which the internal and external teams together winnowed to 45 via online voting. By the time the groups met in person, "it was a supercharged environment," says Favaloro. "Everyone was up on the problem and had already worked on it independently." Adds Stefano Zenezini, P&G's family care product supply vice president: "One hour into the discussion, [and] you're already discovering new things."
Fourth, a very broad set of experts were selected that could represent a wide variety of perspectives (e.g a public policy expert and a project finance expert):
From this discussion came one of the biggest differences in perspective between the external and internal teams. External finance expert Gardner suggested that P&G should add utility-sized renewable power projects to its portfolio. "Their overall electricity demand is 800 megawatts worldwide," says Gardner. "At each plant, if you have less than five megawatts of renewable energy potential, that's not significant enough to move the needle to 30% renewable energy at each plant. You could get 25% of your goal with one few-hundred megawatt wind project."
Fifth and final point, there was enough time allocated to follow through and have detailed discussions about new ideas:
The P&G team was intrigued enough to ask for more information, and Gardner spent the first evening of the tournament preparing a presentation on project finance for the next day. From the presentation, it was clear that new approaches could be beneficial, in particular for large projects.
Pretty good addition to the checklist for my next brainstorming session!

Jan 14, 2012

Apple Without Steve Jobs

As most regular readers may know, I admire Steve Jobs for his ability to manage R&D and deliver innovative products.  Here is a summary of a series of articles that might help us learn a bit more of his methods.  Let us start off with INSEAD Knowledge (Apple Without Steve):
Steve Jobs was a master at the five skills of disruptive innovators. He personally excelled at connecting the unconnected, or associational thinking. He was constantly on the hunt for new insights by observing the world through the eyes of an anthropologist. He regularly networked for new ideas with people who were 180 degrees different than himself. And he constantly experimented with different prototypes of every product and service Apple ever produced. At the very core, Jobs was exceptional at asking provocative questions, ones that challenged the status quo, inside Apple and out. Put simply, Jobs thinks different because he acts different — habitually.
It is a great summary of skills we might all want to develop. However, it is easier said than done! The simple (but wrong) path would be to ask "What would Steve Do" and try to imitate.  As shown by Disney (when Walt Disney passed away), imitation would inhibit innovation. Knowledge at Wharton points out that it would be a mistake to copy Jobs and suggests the following to the new CEO [Cook]:
A copy of anyone is going to come off looking bad. It will never be as good as the original, and people will spend their time focusing on the differences,” Cappelli notes. “I think [Cook] should be himself.” But when it comes to Apple’s business strategy, Cappelli says it would be unwise to depart in any significant way from the path set under Jobs. “I think a ‘steady as she goes’ approach is a good idea, and also about the only option at this point.
A better approach would be to ask "How would Steve address this situation" and "What should I do."  Jobs answer to this seems to have been Apple University (LA Times):
With Apple University, Jobs was trying to achieve something similar, people familiar with the project say. He identified tenets that he believes unleash innovation and sustain success at Apple — accountability, attention to detail, perfectionism, simplicity, secrecy. And he oversaw the creation of university-caliber courses that demonstrate how those principles translate into business strategies and operating practices.
It is a fine line though.  The same article says this as well:

"It became pretty clear that Apple needed a set of educational materials so that Apple employees could learn to think and make decisions as if they were Steve Jobs."
Another article in Knowledge @ Wharton points out that:
But there is no getting around the fact that, as it moves from a company built around one man's vision to more of a team approach, Apple will have to start doing things differently. And beyond any leadership challenges, the company is also operating in a highly competitive and quickly evolving sector where a number of companies are grappling to take the lead on smartphones, tablets, digital music and cloud storage initiatives. "At this point, Apple has a firm, loyal customer base," says Wharton legal studies and business ethics professor Andrea Matwyshyn. "What happens in two to three years may be different story."
So, the idea is for the Apple executives (or all R&D managers) to be themselves.  Instead of trying to imitate or think like Jobs, learn from him and bring their own unique flavor to the company:
But Apple’s success is due to more than Jobs alone, says Wharton operations and information management professor Eric Clemons. “Apple leadership has been brilliant,” he notes. “The team, clearly led by Jobs, but clearly more than Jobs alone, has become the best technology style house in the world. We pay a premium for Apple products because of how they look and how they feel foremost, and then how easy they are to use and to integrate into the rest of our technology and into our lives.”
p.s.: One last bit of useful info about small team organization structure at Apple:
Mueller's research illustrates the challenges Apple may face as it transitions from moving product decisions primarily through Jobs to a team of executives and managers. In a study that looked at 212 knowledge workers in 25 teams ranging from three to 19 members in size, she found that larger groups at the top often "experience more coordination loss or difficulty and inefficiency." "It is so hard to get ideas through the pipeline at large companies," Mueller says. "Creativity is viewed as risky and the corporate culture is designed to squash creative ideas. Will the average person rising through the ranks be rewarded for being creative?

Jan 13, 2012

How 'Undiscussables' Can Undermine an Organization

The article Don't Mention It: How 'Undiscussables' Can Undermine an Organization in Knowledge@Wharton has some interesting pointers about how and why risks are ignored:
After everything falls apart, the failures to act become obvious: Why didn't somebody at Penn State do more to pursue allegations that former assistant football coach Jerry Sandusky was sexually abusing young boys? Didn't anybody at MF Global Holdings notice that something was wrong before $1.2 billion in customer cash disappeared? Why, decade after decade, didn't anyone at Olympus protest $1.7 billion in accounting irregularities?
So, why does this happen? The article lays out the following scenarios:
  • Lack of Clarity: Problems are not obvious to everyone, many have self doubts
  • Fear of Retribution: Difficult to point a finger at the boss or his peers
  • Group Loyalty: Protecting the team
  • Group Dynamics: Desire to not stir the water
So what we R&D managers do to ameliorate this?  The article suggests the following (very hard to do, and almost impossible to do well):
Companies should also establish metrics, routines, audits and incentives to help identify problems and suggest areas of change, says Wharton management professor Lawrence G. Hrebiniak, who has acted as a consultant to dozens of companies such as General Electric, AT&T, Microsoft and DuPont. When top management diligently works to measure performance, elicit feedback and respond openly to problems when raised, it can usually make progress, Hrebiniak has found. "Control systems are important to implementing strategy and identifying problems," he says.
The problem, of course, is with the senior leadership that makes topics undiscussable:
When companies have a culture in which managers are "more interested in hiding things than solving problems," there is little anyone can do to help, Hrebiniak says. "You need top management to react strongly. If they bury the stuff, they're dead.

Jan 12, 2012

Is Morale Irrelevant?

A quick post about Is Morale Irrelevant? in the Sloan Review:
"However, a lackluster economy should not give organizational leaders a “free pass” to ignore morale issues. With all of the changes that occur in any organization over time, employee morale will undoubtedly be affected. "
Here is the take away:
While turnover associated with low morale may not be as likely during uncertain economic times, productivity and performance issues should command executives’ attention. There is still debate over whether a happy worker is always a productive worker, but researchers and businesspeople alike are likely to agree that low morale will not help boost productivity or improve performance. More generally, senior leaders should realize that low morale can be detrimental to the overall climate and culture of their organizations. Low morale stifles “going-the-extra-mile” behavior, and an “it’s-not-my-job” syndrome can become epidemic when managers are not paying attention to the organizational climate they are creating. Over time, a decline in organizational citizenship behavior can translate into an unhealthy cultural shift that erodes the business’s overall competitiveness.

Jan 11, 2012

Gaining a New Understanding of Risk

A short article in the Sloan Review discusses Gaining a New Understanding of Risk: "
In these days of uncertain markets – and an uncertain economy – risk can seem almost omnipresent in business. But how do you manage risk prudently – yet still grow your company? Harvard Business School Professor Robert S. Kaplan That timely question reminds me of an interesting talk I heard this past summer by Harvard Business School professor (and MIT alumnus) Robert S. Kaplan. Kaplan is perhaps best known for his work codeveloping the Balanced Scorecard concept."
The article points out that risk management is hard:
On the other hand, it’s not easy measuring risk – something Kaplan acknowledged. What makes risk management so hard, he observed, is that you’re trying to quantify things that may have never occurred and may never occur. “You can’t rely totally on measurement,” he said.
The article discusses three types of risks and approaches to address them (listed below).  The key take away for me is that some employees will take unauthorized actions to maximize their rewards.  Organizations have to work more more diligently to control this behavior.  I really like this quote:
If you have high-powered incentives, you’d better have even higher-powered control systems”
We have often talked about problems with incentive plans (risk taking, performance, fudging results, etc).  The common complaint I hear from executives about properly controlled incentive plans is that it is too hard to do. May be we need to remember this quote from Prof. Kaplan...

Jan 10, 2012

Getting more from your training programs

The article Getting more from your training programs in McKinsey Quarterly has some interesting data:
  • Companies around the world spend up to $100 billion a year1 to train employees in the skills they need to improve corporate performance
  • Only one-quarter of the respondents to a recent McKinsey survey said their training programs measurably improved business performance, and 
  • Most companies don’t even bother to track the returns they get on their investments in training. 
  • Training is generally provided because employees often need new skills to deal with changes in an organization’s strategy or performance.
We have talked about the importance of evaluating and measuring training programs. We have discussed approaches to rigorously explore the value delivered by training programs. The overall message is that change through training is difficult and (as we have discussed in the past) managers need to be vigilant to get value out of training. This article provides a handy checklist:

1. Create a need or a desire in the staff to receive training.  This can be done by clearly delineating the problem that the training is trying to solve and involving at least some of the staff in generating the training. Here is a handy description of how people avoid training.
Instead of approaching training as active learners, many employees behave as if they were prisoners (“I’m here because I have to be”), vacationers (“I don’t mind being here—it’s a nice break from doing real work”), or professors (“Everybody else is here to learn; I can just share my wisdom”).
2. Uncover the mindset or culture that is underlying the behavior that requires change.  Ensure that the mindset is addressed explicitly - remembering that the training alone cannot change mindset.
For instance, a big-box retailer had been trying to increase its focus on customers for more than two years. It invested millions of dollars in teaching a five-step selling process, monitoring customer feedback, and rolling out e-learning programs to improve its employees’ knowledge of the products it sold. Salespeople passed every certification test they were given yet still didn’t use the new skills on the floor. Customer feedback and store performance remained lackluster.
An examination of the mindset showed that
salespeople clung to age, gender, and racial stereotypes about which customers would make purchases—and tended to ignore the others.
3. Ensure leaders and managers are on board with the new behavior that the training is supposed to implement.  This has been the biggest problem in many implementations I have been part of. More on it below.
A closer examination revealed that the new marketing skills hadn’t taken root, because the company hadn’t trained the department’s leaders, who lacked the necessary skills and could not be effective role models. Further, the leaders were not prepared to change the way they ran meetings, made decisions about branding or advertising programs, conducted performance dialogues, or coached others on marketing skills.
4. Managers and executives should reinforce the new skills as frequently as possible.  Unless leaders are completely sold on the new way of doing business, training will not be successful.
To show that things would be different this time, the executives insisted that the conversations take place and even shadowed the supervisors on the shop floor to help them. While this was uncomfortable for everyone involved, the supervisors soon gained confidence using the new skills and began to see results. Indeed, within just two months, productivity, reliability, and safety performance had all improved, and the plant was able to produce 25 percent more output than it had in the past.
5. Measure the impact of new training and ensure it is delivering value.

One more quick point:
"selected employees in the adjacent departments must be retrained in complementary skills. In a purchasing program, this might mean teaching product developers and people who find supplies for new products how to interpret total-cost-of-ownership analyses so they can set specifications that fit the new procurement strategy. Changes can go as far as altering the development of new products or launching processes to fit the new procurement system. Such a holistic approach helps to set the right expectations and to align employees collectively with the new behavior."

Jan 9, 2012

Enhancing multinational multicultural team efficiency

We have discussed how team become virtual even if the members are just on different floors of the same building.  We have also discussed barriers to the success of  large teams.  Corporate Executive Board provides  two more points to keep in mind:

1. Set up organization structures and processes to work across cultural diversity.
The firm created “local growth teams” consisting of regional experts in sales, marketing, and distribution, and “global product teams” of engineers and product specialists with visibility across all regions to avoid product proliferation or cannibalization.
The local teams are given incentives to maximize local growth and the global teams to maximize global product revenue. The firm then runs frequent sessions where all regional teams meet with each other and the global team to share ideas. This clear structure with its division of labor and supporting rules and processes leads to a harmonious and effective team.
2. Provide teams with effective tools to address diversity and communicate effectively across cultural barriers.
Schlumberger, an oil services firm, provides its R&D teams with a set of guidelines to help overcome project execution problems common to global teams. These include detailed role descriptions for all team members, clear rules on working across time zones, training on common cultural differences and ways of working, and budget for initial in-person meetings between all team members, as well as check-in meetings every two to three months.

Jan 8, 2012

Nokia's troubles continue

We have talked about troubles at Nokia in the past. I had posited that Nokia’s troubles arise from mismanagement not lack of innovation.  We had also discussed that the change at Nokia will require a management cultural change that brings innovations to market - not just strategic change or new alliances (such as the one with Microsoft).  Here is some more evidence from Mobile-review.com:
"When you are in a big trouble and every day there is even more bad news for you it is only natural to try to save your career so the exodus from Nokia continues. Employees responsible for NFC development are leaving the company massively as well as the most valued engineers and developers. And all this is only the top of the iceberg. The company is also being destroyed by the management steadfastly depriving Nokia of any chance for a future. The company is shutting the OVI Contacts ‘cloud’ service that allowed you to store your contacts online (like Gmail and many other services) on January 24. In the end of January the web interface will be gone as well as the possibility to sync your contacts with any service except for your Nokia phone. The company is simply ditching a service that works fine (it is a rather limited service but it worked fine) in order to… well, nothing, they are just getting rid of it for no apparent reason."
Nokia's share price keeps declining.  New products based on WP7 are not exciting and their reviews have been lukewarm at best (anandtech, engadget). Nor are they being successful in the market:
Independent researches beg to differ – Exane BNP Paribas carried out a potential consumer poll on five markets where Lumia 800 has been released. Out of 1300 people 456 planned to buy a smartphone within a month and only 2% of them were interested in Nokia WP7 phones. It is a fail so big it can only be compared to the size of the PR budget of these products.
Clearly, Nokia will have to do more than just bring another smart phone to market.  They will have to differentiate and bring new innovations.  This is easier said than done.  In the fast paced world of mobile electronics, competitors do not get many chances to catch up... Nokia has been trying to address this through acquisitions.  However, integrating new software and OS into a product line - difficult at best - is even more challenging in a diminishing organization.  I am yet to see examples or stories about changing R&D management...

Jan 7, 2012

Six Principles of Effective Global Talent Management

 The Sloan Review article Six Principles of Effective Global Talent Management has some interesting information useful to all R&D managers:
"ONE OF THE BIGGEST CHALLENGES facing companies all over the world is building and sustaining a strong talent pipeline. "
The article has six recommendations for success:
Rather, we found that successful companies adhere to six key principles: (1) alignment with strategy, (2) internal consistency, (3) cultural embeddedness, (4) management involvement, (5) a balance of global and local needs and (6) employer branding through differentiation.
Here my takeaways:

  • Align Skill-set / Talent management with corporate strategy
  • Ensure talent management processes are consistent with each other and with corporate culture
There are also some interesting benchmarks:
  1. General Electric’s “vitality curve,” which differentiates between the top 20%, the middle 70% and the bottom 10%.
  2. Unilever, the Anglo-Dutch consumer products company, puts 15% of employees from each management level in its high-potential category each year, expecting that they will move to the next management level within five years.
  3. Infosys limits the high-potential pool to less than 3% of the total work force
  4. GE began targeting technology skills as a key development requirement during its annual organizational and individual review process, which GE calls Session C.
  5. Oracle found that its objective goal-setting and performance appraisal process was no longer adequate. Management wanted to add some nonfinancial and behavior-based measures to encourage people to focus on team targets, leadership goals and governance.
  6. IBM holds “ValuesJam” sessions that provide time to debate and consider the fundamentals of the values in an effort to make sure that they are not perceived as being imposed from the top!
  7. BT, the British telecommunications giant, has implemented a performance management system that looks at employees on two dimensions: the extent to which they achieve their individual performance objectives, and the values and behaviors they displayed to deliver the results.
  8. A McKinsey study found that more than 50% of CEOs, business unit leaders and HR executives interviewed believed that insular thinking and a lack of collaboration prevented their talent management programs from delivering business value.
  9. P&G, was in one year able to attract about 600,000 applicants worldwide — of whom it hired about 2,700 — by emphasizing opportunities for long-term careers and promotion from within.