Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
These brief summaries highlight the key points and action steps to be found in the feature articles in this issue of Strategy & Leadership
4 CEO Interview: the InnoCentive model of open innovationRobert J. Allio
Darren J. Carroll (firstname.lastname@example.org) is President and Chief Executive Officer of InnoCentive, which connects a virtual global community of 50,000 qualified scientists with its client companies that are seeking solutions to high-tech problems.
InnoCentive's open innovation model is designed to exponentially expand its client companies' share of mind. CEOs of companies that have embraced open innovation are learning that the greatest value offered to their company by their research scientists is to be very good solution finders, not problem solvers. The InnoCentive model allows seekers struggling to fund all their promising new product development opportunities to tap into inexpensive solvers – scientists residing in Russia, China, India, the EU, or the US – who are uniquely prepared minds. This is a way for R&D companies to exponentially work smarter by opening up to a global community with fresh ideas.
The process: InnoCentive's model
A seeker company – clients such as Procter & Gamble, Dow, Eli Lilly – posts problems anonymously on the InnoCentive Web site. The problem solvers submit solutions. The best one that fits the posted criteria is awarded payment.
Confidentiality and integrity of the marketplace are assured:
The identity of our seeker companies is hidden from the specific problems promulgated. Solvers only see discrete problems that address a particular issue in a major research program, not the name of the seeking company. Solvers know that their answers are kept confidential, and that they are protected from the company taking their answers: InnoCentive has an audit provision and its scientists act as advocates for the solver scientists.
InnoCentive validates the award amount offered by estimating the complexity of the problem, the amount of resources required, and the value of the solution to the seeker company.
The value proposition of a third party, like InnoCentive, to be the go-between those seeking answers to problems and those providing the answers, includes:
Problem definition assistance. InnoCentive scientists have the needed expertise to aid the seeker company to define the problem and set boundaries around what a solution actually has to do.
Access to a growing network of 50,000 respected scientists. Open innovation provides clients companies with fresh insights, more time for their busy internal scientists, and a trove of low-cost expertise.
Preliminary vetting to screen out ideas that clearly do not meet the criteria.
A feedback loop between the scientists reviewing the submissions and the submitters.
The bottom line: When doing research for new products, the competitive advantage lies in getting to a solution faster, better, and cheaper. And that's where an open innovation model can help.
10 Match your merger integration strategy and leadership style to your merger typeBarbara Lind and John Stevens
For any manager planning the integration of two businesses after a merger/acquisition, this article provides a methodology you can use to customize your approach. To be successful, the leaders must match their decisions and behaviors to the type of merger they are managing. Leadership style and actions do make a difference. Many "dos and don'ts" are cited. To illustrate the importance of leadership style, a service business is used.
To begin, there are four types of mergers (a diagnostic is provided so you can assess your situation):
Plan & prosper (high good will, low disparity/difference between the companies);
Merge & grow (high good will, high disparity);
Stand & hold (low good will, high disparity); and
Segment & sell (low good will, low disparity).
In service businesses where the value of the company tends to reside largely in its social capital – its people and their client relationships – the merged business needs to be protected and nurtured (plan & prosper). Instead, all too often such businesses are wrongfully subjected to an all out effort to absorb them into the acquiring company (merge & grow). The difference in approach is evidenced in the different mangers' quotes for how to successfully do the integration:
Plan & prosper – "Need flexibility in leadership, managing a series of situations over time". "Critical to maintain culture and relationships".
Merge & grow – "Do it fast, get it done". "You got five minutes to figure it out". "Make your decisions and move on". "Have a cookbook and run with it". "You need a field marshal or a general to lead".
Successfully merging companies, where people and relationships are all important, calls for a more thoughtful, creative and differentiated approach to integration. In contrast, a fast, decisive and highly directive (even autocratic) approach works best in situations where the two entities make similar products or share many customer segments.
Such findings are a beginning; there is much more work to be done in identifying successful integration models for the different merger categories. But as a start more leaders must focus on recognizing differences in merger and integration strategies. They need to develop the mindsets and the skill sets to identify the strategy and style that is appropriate to each merger and to understand that the deal integration process is a unique and complex transaction. At the heart of their ability to do this is leadership style. The successful leaders must have a thoroughness, open-mindedness and ongoing involvement to beat the odds and lead their companies into the M&A winner's circle.
17 Increasing the odds of successful growth: the critical prelude to moving "beyond the core"Chris Zook
Bain & Company has conducted and researched numerous studies from which valuable truths can be concluded about achieving business growth through diversification. First, the key to a company growing beyond its core is the strength of its core business. Overall, the odds for successful growth initiatives are nearly three times higher for companies moving into closely adjacent business from a strong core business.
Second, the needs of the core business must be put first. A main risk in diversification (to achieve growth) is shifting too much investment into the new effort without sufficient reinvestment in the core business. Leadership positions are remarkably stable and not easily won. Findings show that companies in the top two spots remain in those positions 70 percent of the time. On average, the top two leaders capture 40 percent of the revenues and 70 percent of the profits and 80 percent of the value and new growth. In general, competitive position is more important than market choice in driving company profitability. For new, profitable growth, it is at least three times more advantageous to have a strong position in a low growth industry than a weak position in a high growth sector.
Third, most executives surveyed believe that their core business was not close to achieving its true potential for profitable growth. Therefore, before a company embarks upon a path of seeking new grow via diversification, it is wise to first strengthen its core business and thus provide a more robust platform for future expansion.
Case studies are presented that discuss four possible situations a company may face:
The need to boost a strong but under performing core, as in the case of AmBev. This case shows that there is significant potential for further growth often lies dormant within under-performing core businesses, even among industry leaders. Companies should first look to the potential that may continue to lie within their core business before thinking about growth beyond it.
The need to boost a weak core business by strengthening its leadership position in the market as a whole. This can be done by consolidating upwards, as in the case of USF.
The need to boost a weak core business by creating a stronger position within a more narrowly defined market boundary. MBNA and EMC did so by consolidating downwards.
The need to escape from a declining core (the case of Imation).
The case studies present tangible examples of successful core strengthening tactics.
24 Family businesses: their virtues, vices, and strategic pathMichael K. Allio
Family businesses are a powerhouse of the US economy. Some of the largest businesses in and outside the US are family controlled: Wal-Mart, Cargill, Samsung are just three notables. Family businesses significantly out perform non-family businesses. So how to learn from their strengths? Paradoxically, many of their outstanding strengths are also their profound weaknesses. This article examines the virtues and vices of family businesses, explains how to leverage their strengths and diminish the vices, and offers recommendations for a strategic approach for management.
There are five meta virtues underpinning why family businesses succeed:
Loyalty – family members tend to test their actions against a higher standard than 9-to-5 managers: they drive harder, longer, and eschew self-serving actions for the common good.
Focus – family firms usually maintain exceptional focus on their core business or markets. Dell is cited.
Speed – family businesses tend to move more quickly than bureaucratically entrenched traditional companies.
Deep pockets for growth – with a family war chest, nimble response and accelerated investments allow them to take advantage of opportunities.
Follow-through – implementation of an action is taken personally; protecting shareholder value is far less abstract when the shareholders are down the hall.
The flip side of each strength is a vice: blind-loyalty, tunnel vision, impulsivity, good money after bad, and myopic management where short-term tactics rule the day.
Four guidelines are offered to family businesses that are experiencing the "vices". Following them will minimize risk and maximize the business' ability to sustain and create value:
formulate strategy, formally;
communicate strategy, and performance metrics;
commit to management development, and succession planning; and
balance inside and outside perspectives – (a) engage a diverse board of directors, (b) benchmark at the business level, (c) convert outsiders into insiders, and (d) deploy qualified outside resources.
While no formula addresses all situations, adopting a balanced, strategic approach to managing the challenges delivers positive results and enhances the chances of passing on the family legacy.
34 Media and entertainment 2010 scenario: the open media company of the futureSaul Berman
The meta-trends that are revolutionizing the media and entertainment industry are also rocking other industries. Many industries can learn from this IBM Consulting article's presentation of trends, its recommended new business model and a scenario of what the industry will be like in the year 2010.
The dilemma: digital technology that enables customers to easily copy and distribute new offerings threatens the economics of the industry but also opens new business frontiers.
The confluence of two meta trends: (1) new media technologies and changing customer and consumer behavior patterns are being driven by more digital capabilities at affordable prices; and (2) new developments in business systems are enabling digital content management, business intelligence and on demand response to customers and consumers.
The need: to create an open media company. The closed and proprietary media and entertainment business models of years past will give way to open media business strategies that will enable forward-looking companies to exploit significant opportunities for profitability within these trends.
The new business model – "open media company of the future":
open the media experience – leverage advances in technology to provide customers and consumers a more involved experience with the media firm;
open content reserves – develop accessible, flexible digital content systems that can enable distribution to virtually any media context;
open content creation and distribution – establish digitized processes that monitor and incorporate input from customers and consumers to garner their attention; and
open content packaging, bundling and sales strategies – utilize variable pricing models that enable partners to advertise and share profits, and enables consumers to access content through more compelling release schedules.
The economics: while, at present, digital technologies that permit easy counterfeiting and copying undermine the traditional economics of the media business, soon new digital technologies will support improved business intelligence, thus enabling the open media firm to identify higher-value business components and assets. In the uncertain markets described in the scenario, companies will employ advanced data analytics to adapt and respond to changing conditions. Digital management capabilities will likely become a core competency and differentiator.
Partnership strategies will enable companies to optimize cost, revenue and capital utilization – feeding shareholder value by driving economies of scale. Success will require executive foresight, the strategic integration of partner competencies and realtime technologies for managing cross-enterprise processes and workflows.
The guidelines: ten strategic guidelines for players evolving toward becoming the open media company of the future are offered.
45 Case study: how a Weyerhaeuser unit executed a winning strategy using Desert Storm's fast-cycle strategic-action approachLeland Russell, Joyce Jaffe and Sudhir Chadalavada
This case of a Weyerhaeuser business unit's use of the military's methodologies provides an interesting example for other businesses that are faced with a daunting challenge to develop and execute strategies in a complex, rapidly changing business environment, when timely implementation is an important key to success.
The goal of the industrial segment of Weyerhaeuser Building Materials (WBM) division was to accelerate innovation and growth in a stagnant market after two earlier, unsuccessful attempts. The complexity of the task was large: 70 geographically dispersed locations and decision makers, new matrix organization, and a multi-market environment in 12 regions.
The problems that instigated this endeavor were a weak niche competitive position; a lack of strategic focus meant that every local business unit targeted its own unique set of customers and products; a stalemate between local units and central management; shrinking returns.
The solution: apply the methods of Desert Storm
The industrial segment of WBM developed a revenue-growth initiative and accelerated its execution by applying the fast-cycle methodology of Desert Storm strategists. Their nine lessons were translated into a strategic action model that seamlessly linked strategic thinking with execution planning and implementation. Using this strategic action model and a Web-based collaboration center, the WBM teams were kept focused and on-track. They rapidly captured and synthesized a broad spectrum of views/opinions/ideas and translated it into strategy and action agendas that everyone understood and bought into.
The nine principles from Desert Storm
Understand the dynamics that could affect success;
Decide what you want to achieve long term;
Specify the behaviors that will help you win long term;
Identify the system's people, processes and infrastructure;
Focus resources where they will have systemic impact;
Create tactical plans in real-time; improve as you move;
Use a "campaign" structure to concentrate resources;
Execute rapidly and precisely in parallel; and
Know when and how to exit; win the peace that follows.
WBM's business results
The industrial segment of WBM was clearly pleased with the business results reported 12 months later: highest-ever rate of sales growth; net profits up 58 percent; return on assets up 60 percent; headcount reduced 10 percent; total business investment held constant, despite growth; share of key market segments increased.
The new strategy completely repositioned the business.