Innovation Blog

28.4.10

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22.7.09

Not something you expect on CrunchGear


http://www.crunchgear.com/2009/07/22/on-the-apple-suicide/

22.5.09

Google Searches for Staffing Answers


Google Searches for Staffing Answers


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By SCOTT MORRISON
Concerned a brain drain could hurt its long-term ability to compete, Google Inc. is tackling the problem with its typical tool: an algorithm.
The Internet search giant recently began crunching data from employee reviews and promotion and pay histories in a mathematical formula Google says can identify which of its 20,000 employees are most likely to quit.
Google officials are reluctant to share details of the formula, which is still being tested. The inputs include information from surveys and peer reviews, and Google says the algorithm already has identified employees who felt underused, a key complaint among those who contemplate leaving.

More
Digits: Internet Archive Founder Questions Google Books Settlement
Applying a complex equation to a basic human-resource problem is pure Google, a company that made using heavy data to drive decisions one of its "Ten Golden Rules" outlined in 2005.
Edward Lawler, director of the Center for Effective Organizations at the University of Southern California, said Google is one of a few companies that are early in taking a more quantitative approach to personnel decisions.
"They are clearly ahead of the curve, but a lot of companies are waking up to the fact that there is a lot of modeling that can provide you with critical data on human capital," Mr. Lawler said.

[google staffing turnover]

Associated Press

Current and former Googlers said the company is losing talent because some employees feel they can't make the same impact as the company matures.
The move is one of a series Google has made to prevent its most promising engineers, designers and sales executives from leaving at a time when its once-powerful draws -- a start-up atmosphere and soaring stock price -- have been diluted by its growing size. The data crunching supplements more traditional measures like employee training and leadership meetings to evaluate talent.
Google's algorithm helps the company "get inside people's heads even before they know they might leave," said Laszlo Bock, who runs human resources for the company.
Concerns about a talent exodus have revived in recent weeks amid the departures of top executives, including advertising sales boss Tim Armstrong and display-advertising chief David Rosenblatt. Meanwhile, midlevel employees like lead designer Doug Bowman, engineering director Steve Horowitz and search-quality chief Santosh Jayaram continue to decamp to hot start-ups like Facebook Inc. and Twitter Inc.

Journal Community
DISCUSS

"

Google needs to develop a human touch vs. always looking to tech.
"

— Gregory Lynn
Current and former Googlers said the company is losing talent because some employees feel they can't make the same impact as the company matures. Several said Google provides little formal career planning, and some found the company's human-resources programs too impersonal.
"They need to come up with ways to keep people engaged," said Valerie Frederickson, a Silicon Valley personnel consultant who has worked with former Google employees. "If Google was doing this enough, they wouldn't be losing all these people."
Google spokesman Matt Furman said the chance to contribute to "constant and often amazing innovation" keeps employees engaged. The company is determined to retain top product managers and engineers.
Google wouldn't say how many people have left, but says it has managed to hang on to its most important staffers. "We haven't seen the most critical people leave," Mr. Bock said.
Write to Scott Morrison at scott.morrison@dowjones.com

Cool bike!!


http://www.ted.com/index.php/talks/lang/eng/yves_behar_s_supercharged_motorcycle_design.html

Merci/ thanks
 ________________________________________________________________
Jean-François Barsoum, MBA
Senior Managing Consultant & Practice Leader, Green + Innovation Strategies

ibm +1.514.964.4192  ::  fax +1.845.491.2412  :: 
jbarsoum@ca.ibm.com
IBM Canada: Suite 400, 1360 boul. René-Lévesque Ouest, Montréal (QC) H3G 2W6
P Si possible, s.v.p. évitez d'imprimer ce courriel - please avoid printing this e-mail if possible

29.1.09

When IBM Beats Facebook And Twitter: Discover Relevant People Within Your Network


http://www.techcrunchit.com/2009/01/29/when-ibm-beats-facebook-and-twitter-discover-relevant-people-within-your-network/

When IBM Beats Facebook And Twitter: Discover Relevant People Within Your Network
5 Comments
by Jeff Widman on January 29, 2009

When twitter recently added a "Suggested Friends" feature, I was more than a little disappointed. Unlike Facebook's "People You May Know" feature, no explanation is provided for why these people were suggested.

In an enterprise setting, the most valuable people are the connectors: "The people who know which people know what", according toAlan Lepofsky.

The larger the organization, the more likely someone else is working on the same problem. And the less likely you'll find them.

Automatic "Friend Suggestions" shift the connector role from people to software. These suggestion algorithms can use all sorts of data, from mutual friends to similar content (if we both tweet the same thing) to match relevant people. If you have the data, there's a million ways to slice it. But every attempt I've seen seems mediocre at best.

While touring IBM's Innovation lab at Lotusphere last week, I was surprised to see IBM is also tackling this problem with their "Social Networks & Discovery" project (SaND for short). And it looked FAR better than anything I've seen previously.

Their relevant person suggestion engine (screenshot above) uses mutual connections across multiple networks, shared knowledge tags, and even values certain connections above others (like a mutual boss).

Perhaps even more interesting, the IBM aggregation and filtering system works on any entity in a system–people, textual documents, or meta-information (tags). Like Google, searching on any term returns a ranked results list. But unlike Google, pausing over a link shows the relationships between people, tags, and documents (screenshot below).

As I tweeted earlier this week, I rarely read RSS anymore. Too much content, too little time. As this information proliferation grows–on both sides of the firewall–filtering relevant people and content will only become more necessary.

This is still in the research phase, and isn't shipping in any IBM products yet, but I expect to see it in Lotus Connections fairly soon.

(Hat Tip to TechCrunch fan Ido Guy–an IBM researcher on another project, he pointed this out to me and said, "No one else in consumer or enterprise is doing this yet.")

26.1.09

If you like mind maps....


You might like this http://www.amap.org.uk/

Story: http://www.techcrunch.com/2009/01/26/make-amap-of-your-best-arguments/

19.1.09

Flaws in strategic decision making: McKinsey Global Survey Results


Note: "executives at companies with satisfactory outcomes ... [ensure] that truly innovative ideas reached senior managers."


Flaws in strategic decision making: McKinsey Global Survey Results
Irrational thinking doesn't just affect individual economic decisions; it affects corporate strategic planning as well. These results highlight the practices of companies that have made successful strategic decisions—and also reveal what the same companies have gotten wrong.
January 2009
Since its inception nearly three decades ago, behavioral economics has upset the pristine premise of classical economic theory—the view that individuals will always behave rationally to achieve the best possible outcome. Today it's clear that the vagaries of individual and group psychology can cause irrational decision making by both individuals and organizations, resulting in less than ideal outcomes. Even the best-designed strategic-planning processes don't always lead to optimal decisions. A recent survey by McKinsey attempts to assess the frequency and intensity of the most common managerial biases in companies. Specifically, we asked executives about a single recent strategic decision at their companies that had a clearly satisfactory or unsatisfactory outcome, focusing on the role that various biases may have played.1
It's evident from the results that satisfactory outcomes are associated with less bias, thanks to robust debate, an objective assessment of facts, and a realistic assessment of corporate capabilities. A few clear paths to making successful decisions also are apparent. But even when a decision had a satisfactory outcome, executives note several areas where their companies aren't all that effective, such as aligning incentives with strategic objectives and forecasting competitors' reactions.2 Also notable is that companies that typically make good decisions focus more on their own ability to execute than other companies do, regardless of the outcome of the particular decision described in the survey.
Notes
1The McKinsey Quarterly conducted the survey in October 2008 and received responses from 2,207 executives representing a global range of industries, regions, and functional specialties.
2This is in line with the results of another survey on how companies respond to competition. See "How companies respond to competitors: A McKinsey Global Survey," mckinseyquarterly.com, May 2008.


When all goes well
Most companies work hard to make their strategic decision-making processes as rigorous as possible. And when executives are satisfied with the outcome of their decisions, they tend to rate their companies' processes highly in terms of practices that avoid many biases, though some do creep in (Exhibit 1).3
Companies that reach satisfactory outcomes do so in a few different ways, and three distinct themes emerge from executives' responses. The first theme is assessment: at companies with satisfactory outcomes, executives give their processes high marks for forecasting demand and competitor reaction, assessing their own capabilities, and tailoring their evaluation approach to the specific decision.
The second theme is process: executives at companies with satisfactory outcomes rate their processes highly when it comes to seeking contrary evidence and ensuring that decision makers had all the critical information, giving dissenting voices the floor, reviewing the business case thoroughly even though senior executives were strongly in favor, and ensuring that truly innovative ideas reached senior managers.

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And the third theme is a focus on targets: the satisfied respondents assign high ratings to aligning incentives and basing the decision on a mix of financial and strategic targets as well as on a mix of short- and long-term targets.
It's also notable that at companies where executives rate their strategic decisions overall as good, they are much likelier than others to say the company's assessment of its own capability to carry out the particular decision was realistic, regardless of whether this decision had a good or bad outcome (Exhibit 2). Indeed, at companies with good overall processes, realistic assessment of execution capabilities is the third highest-rated activity, regardless of whether the particular decision had a satisfactory outcome. While at companies that make poor decisions overall, realistic assessment of execution ranks sixth for respondents evaluating a satisfactory decision and tenth for respondents evaluating a poor decision.

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Notes
3Though there is a well-known tendency among people to rate themselves or their companies highly on specifics when they also think they do well in general, the differences in the intensity of the biases asked about here nonetheless provide a clear understanding of what executives think they do well and less well.



What goes wrong
At companies where the outcome of the decision was unsatisfactory, respondents generally rate themselves lower across the board. As one would expect, compared with the executives who are satisfied with their business results, they are less likely to say they have adequately used all the practices associated with successful decision making (Exhibit 3).
Further, regardless of what type of decision a company was making or what the outcome was, the best practice cited least often is that of actively seeking evidence contrary to the initial plan.
Decisions on certain subjects, whether leading to satisfactory or unsatisfactory outcomes, tend to include or avoid similar practices aimed at preventing bias. For example, whether the outcome was satisfactory or not, marketing decisions incorporate more of the best practices than any other single type of decision (Exhibit 4). Perhaps this is because companies make these types of decisions relatively often. Merger or acquisition decisions, which by nature tend to be less frequent, are the most likely to be missing elements of good decision making when the outcomes were poor.

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Looking ahead

  • One of the most frequent practices at companies that make good decisions is the accurate assessment of execution capabilities, indicating that managers should increase their focus on this element when considering strategic options.
  • Even satisfactory decisions tend to overlook a good assessment of competitors' reactions or a good alignment of individual incentives with strategic objectives, suggesting that all companies can improve their decision making by focusing on these practices.
  • Given the prevalence of individual and group biases in decision making that these findings highlight, managers could likely make better decisions by actively experimenting with alternative techniques such as prediction markets or other collective intelligence tools, which can nullify many pervasive biases. 
    About the Contributors
    Contributors to the development and analysis of this survey include Renee Dye, a consultant in McKinsey's Atlanta office; and Olivier Sibony and Vincent Truong, a director and consultant, respectively, in the Paris office.

Eight business technology trends to watch


Eight business technology trends to watch
Eight emerging trends are transforming many markets and businesses. Executives should learn to shape the outcome rather than just react to it.
DECEMBER 2007 • James M. Manyika, Roger P. Roberts, and Kara L. Sprague


Information Technology, Applications Article, business technology trends
In This Article
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About the authors
Letters to the editor


Technology alone is rarely the key to unlocking economic value: companies create real wealth when they combine technology with new ways of doing business. Through our work and research, we have identified eight technology-enabled trends that will help shape businesses and the economy in coming years. These trends fall within three broad areas of business activity: managing relationships, managing capital and assets, and leveraging information in new ways.
Managing relationships
1. Distributing cocreation
The Internet and related technologies give companies radical new ways to harvest the talents of innovators working outside corporate boundaries. Today, in the high-technology, consumer product, and automotive sectors, among others, companies routinely involve customers, suppliers, small specialist businesses, and independent contractors in the creation of new products. Outsiders offer insights that help shape product development, but companies typically control the innovation process. Technology now allows companies to delegate substantial control to outsiders—cocreation—in essence by outsourcing innovation to business partners that work together in networks. By distributing innovation through the value chain, companies may reduce their costs and usher new products to market faster by eliminating the bottlenecks that come with total control.
Information goods such as software and editorial content are ripe for this kind of decentralized innovation; the Linux operating system, for example, was developed over the Internet by a network of specialists. But companies can also create physical goods in this way. Loncin, a leading Chinese motorcycle manufacturer, sets broad specifications for products and then lets its suppliers work with one another to design the components, make sure everything fits together, and reduce costs. In the past, Loncin didn't make extensive use of information technology to manage the supplier community—an approach reflecting business realities in China and in this specific industrial market. But recent advances in open-standards-based computing (for example, computer-aided-design programs that work well with other kinds of software) are making it easier to cocreate physical goods for more complex value chains in competitive markets.
If this approach to innovation becomes broadly accepted, the impact on companies and industries could be substantial. We estimate, for instance, that in the US economy alone roughly 12 percent of all labor activity could be transformed by more distributed and networked forms of innovation—from reducing the amount of legal and administrative activity that intellectual property involves to restructuring or eliminating some traditional R&D work.
Companies pursuing this trend will have less control over innovation and the intellectual property that goes with it, however. They will also have to compete for the attention and time of the best and most capable contributors.
Further reading:
Yochai Benkler, 
The Wealth of Networks: How Social Production Transforms Markets and Freedom, Cambridge, MA: Yale University Press, 2006. 
Henry Chesbrough, 
Open Innovation: The New Imperative for Creating and Profiting from Technology, Boston: Harvard Business School Press, 2003. 
James Surowiecki, 
The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, New York: Doubleday, 2004. 
Eric von Hippel, 
Democratizing Innovation, Cambridge, MA: MIT Press, 2005.
2. Using consumers as innovators
Consumers also cocreate with companies; the online encyclopedia Wikipedia, for instance, could be viewed as a service or product created by its distributed customers. But the differences between the way companies cocreate with partners, on the one hand, and with customers, on the other, are so marked that the consumer side is really a separate trend. These differences include the nature and range of the interactions, the economics of making them work, and the management challenges associated with them.
As the Internet has evolved—an evolution prompted in part by new Web 2.0 technologies—it has become a more widespread platform for interaction, communication, and activism. Consumers increasingly want to engage online with one another and with organizations of all kinds. Companies can tap this new mood of customer engagement for their economic benefit.
OhmyNews, for instance, is a popular South Korean online newspaper written by upwards of 60,000 contributing "citizen reporters." It has quickly become one of South Korea's most influential media outlets, with around 700,000 site visits a day. Another company that goes out of its way to engage customers, the online clothing store Threadless, asks people to submit new designs for T-shirts. Each week, hundreds of participants propose ideas and the community at large votes for its favorites. The top four to six designs are printed on shirts and sold in the store; the winners receive a combination of cash prizes and store credit. In September 2007 Threadless opened its first physical retail operation, in Chicago.
Companies that involve customers in design, testing, marketing (such as viral marketing), and the after-sales process get better insights into customer needs and behavior and may be able to cut the cost of acquiring customers, engender greater loyalty, and speed up development cycles. But a company open to allowing customers to help it innovate must ensure that it isn't unduly influenced by information gleaned from a vocal minority. It must also be wary of focusing on the immediate rather than longer-range needs of customers and be careful to avoid raising and then failing to meet their expectations.
Further reading:
C. K. Prahalad and Venkat Ramaswamy, 
The Future of Competition: Co-Creating Unique Value with Customers, Boston: Harvard Business School Press, 2004. 
Don Tapscott and Anthony D. Williams, 
Wikinomics: How Mass Collaboration Changes Everything, New York: Portfolio Hardcover, 2006.
3. Tapping into a world of talent
As more and more sophisticated work takes place interactively online and new collaboration and communications tools emerge, companies can outsource increasingly specialized aspects of their work and still maintain organizational coherence. Much as technology permits them to decentralize innovation through networks or customers, it also allows them to parcel out more work to specialists, free agents, and talent networks.
Top talent for a range of activities—from finance to marketing and IT to operations—can be found anywhere. The best person for a task may be a free agent in India or an employee of a small company in Italy rather than someone who works for a global business services provider. Software and Internet technologies are making it easier and less costly for companies to integrate and manage the work of an expanding number of outsiders, and this development opens up many contracting options for managers of corporate functions.
The implications of shifting more work to freelancers are interesting. For one thing, new talent-deployment models could emerge. TopCoder, a company that has created a network of software developers, may represent one such model. TopCoder gives organizations that want to have software developed for them access to its talent pool. Customers explain the kind of software they want and offer prizes to the developers who do the best job creating it—an approach that costs less than employing experienced engineers. Furthermore, changes in the nature of labor relationships could lead to new pricing models that would shift payment schemes from time and materials to compensation for results.
This trend should gather steam in sectors such as software, health care delivery, professional services, and real estate, where companies can easily segment work into discrete tasks for independent contractors and then reaggregate it. As companies move in this direction, they will need to understand the value of their human capital more fully and manage different classes of contributors accordingly. They will also have to build capabilities to engage talent globally or contract with talent aggregators that specialize in providing such services. Competitive advantage will shift to companies that can master the art of breaking down and recomposing tasks.
Further reading:
Richard Florida, 
The Rise of the Creative Class: And How It's Transforming Work, Leisure, Community, and Everyday Life, New York: Basic Books, 2004. 
Daniel H. Pink, 
Free Agent Nation: How America's New Independent Workers Are Transforming the Way We Live, New York: Warner Books, 2001.
4. Extracting more value from interactions
Companies have been automating or offshoring an increasing proportion of their production and manufacturing (transformational) activities and their clerical or simple rule-based (transactional) activities. As a result, a growing proportion of the labor force in developed economies engages primarily in work that involves negotiations and conversations, knowledge, judgment, and ad hoc collaboration—tacit interactions, as we call them. By 2015 we expect employment in jobs primarily involving such interactions to account for about 44 percent of total US employment, up from 40 percent today. Europe and Japan will experience similar changes in the composition of their workforces.
The application of technology has reduced differences among the productivity of transformational and transactional employees, but huge inconsistencies persist in the productivity of high-value tacit ones. Improving it is more about increasing their effectiveness—for instance, by focusing them on interactions that create value and ensuring that they have the right information and context—than about efficiency. Technology tools that promote tacit interactions, such as wikis, virtual team environments, and videoconferencing, may become no less ubiquitous than computers are now. As companies learn to use these tools, they will develop managerial innovations—smarter and faster ways for individuals and teams to create value through interactions—that will be difficult for their rivals to replicate. Companies in sectors such as health care and banking are already moving down this road.
As companies improve the productivity of these workers, it will be necessary to couple investments in technologies with the right combination of incentives and organizational values to drive their adoption and use by employees. There is still substantial room for automating transactional activities, and the payoff can typically be realized much more quickly and measured much more clearly than the payoff from investments to make tacit work more effective. Creating the business case for investing in interactions will be challenging—but critical—for managers.
Further reading:
Bradford C. Johnson, James M. Manyika, and Lareina A. Yee, "
The next revolution in interactions," mckinseyquarterly.com, November 2005. 
Scott C. Beardsley, Bradford C. Johnson, and James M. Manyika, "
Competitive advantage from better interactions," mckinseyquarterly.com, May 2006. 
Thomas W. Malone, 
The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life, Boston: Harvard Business School Press, 2004.
Managing capital and assets
5. Expanding the frontiers of automation
Companies, governments, and other organizations have put in place systems to automate tasks and processes: forecasting and supply chain technologies; systems for enterprise resource planning, customer relationship management, and HR; product and customer databases; and Web sites. Now these systems are becoming interconnected through common standards for exchanging data and representing business processes in bits and bytes. What's more, this information can be combined in new ways to automate an increasing array of broader activities, from inventory management to customer service.
During the late 1990s FedEx and UPS linked data flowing through their internal tracking systems to the Internet—no trivial task at the time—to let customers track packages from their Web sites, with no human intervention required on the part of either company. By leveraging and linking systems to automate processes for answering inquiries from customers, both dramatically reduced the cost of serving them while increasing their satisfaction and loyalty. More recently, Carrefour, Metro, Wal-Mart Stores, and other large retailers have adopted (and asked suppliers to adopt) digital-tagging technologies, such as radio frequency identification (RFID), and integrated them with other supply chain systems in order to automate the supply chain and inventory management further. The rate of adoption to date disappoints the advocates of these technologies, but as the price of digital tags falls they could very well reduce the costs of managing distribution and increase revenues by helping companies to manage supply more effectively.
Companies still have substantial headroom to automate many repetitive tasks that aren't yet mediated by computers—particularly in sectors and regions where IT marches at a slower pace—and to interlink "islands of automation" and so give managers and customers the ability to do new things. Automation is a good investment if it not only lowers costs but also helps users to get what they want more quickly and easily, though it may not be a good idea if it gives them unpleasant experiences. The trick is to strike the right balance between raising margins and making customers happy.
Further reading:
John Hagel III, 
Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services, Boston: Harvard Business School Press, 2002. 
Claus Heinrich, 
RFID and Beyond: Growing Your Business with Real World Awareness, Indianapolis, IN: Wiley Publishing, 2005. 
Jeanne W. Ross, Peter Weill, and David C. Robertson, 
Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, Boston: Harvard Business School Press, 2006.
6. Unbundling production from delivery
Technology helps companies to utilize fixed assets more efficiently by disaggregating monolithic systems into reusable components, measuring and metering the use of each, and billing for that use in ever-smaller increments cost effectively. Information and communications technologies handle the tracking and metering critical to the new models and make it possible to have effective allocation and capacity-planning systems.
Amazon.com, for example, has expanded its business model to let other retailers use its logistics and distribution services. It also gives independent software developers opportunities to buy processing power on its IT infrastructure so that they don't have to buy their own. Mobile virtual-network operators, another example of this trend, provide wireless services without investing in a network infrastructure. At the most basic level of unbundled production, 80 percent of all companies responding to a recent survey on Web trends say they are investing in Web services and related technologies. Although the applications vary, many are using these technologies to offer other companies—suppliers, customers, and other ecosystem participants—access to parts of their IT architectures through standard protocols.1
Unbundling works in the physical world too. Today you can buy fractional time on a jet, in a high-end sports car, or even for designer handbags. Unbundling is attractive from the supply side because it lets asset-intensive businesses—factories, warehouses, truck fleets, office buildings, data centers, networks, and so on—raise their utilization rates and therefore their returns on invested capital. On the demand side, unbundling offers access to resources and assets that might otherwise require a large fixed investment or significant scale to achieve competitive marginal costs. For companies and entrepreneurs seeking capacity (or variable additional capacity), unbundling makes it possible to gain access to assets quickly, to scale up businesses yet keep their balance sheets asset light, and to use attractive consumption and contracting models that are easier on their income statements.
Companies that make their assets available for internal and external use will need to manage conflicts if demand exceeds supply. A competitive advantage through scale may be hard to maintain when many players, large and small, have equal access to resources at low marginal costs.
Further reading:
"
Jeff Bezos' risky bet," BusinessWeek, November 13, 2006.
Leveraging information in new ways
7. Putting more science into management
Just as the Internet and productivity tools extend the reach of and provide leverage to desk-based workers, technology is helping managers exploit ever-greater amounts of data to make smarter decisions and develop the insights that create competitive advantages and new business models. From "ideagoras" (eBay-like marketplaces for ideas) to predictive markets to performance-management approaches, ubiquitous standards-based technologies promote aggregation, processing, and decision making based on the use of growing pools of rich data.
Leading players are exploiting this information explosion with a diverse set of management techniques. Google fosters innovation through an internal market: employees submit ideas, and other employees decide if an idea is worth pursuing or if they would be willing to work on it full-time. Intel integrates a "prediction market" with regular short-term forecasting processes to build more accurate and less volatile estimates of demand. The cement manufacturer Cemex optimizes loads and routes by combining complex analytics with a wireless tracking and communications network for its trucks.
The amount of information and a manager's ability to use it have increased explosively not only for internal processes but also for the engagement of customers. The more a company knows about them, the better able it is to create offerings they want, to target them with messages that get a response, and to extract the value that an offering gives them. The holy grail of deep customer insight—more granular segmentation, low-cost experimentation, and mass customization—becomes increasingly accessible through technological innovations in data collection and processing and in manufacturing.
Examples are emerging across a wide range of industries. Amazon.com stands at the forefront of advanced customer segmentation. Its recommendation engine correlates the purchase histories of each individual customer with those of others who made similar purchases to come up with suggestions for things that he or she might buy. Although the jury is still out on the true value of recommendation engines, the techniques seem to be paying off: CleverSet, a pure-play recommendation-engine provider, claims that the 75 online retailers using the engine are averaging a 22 percent increase in revenue per visitor.2 Meanwhile, toll road operators are beginning to segment drivers and charge them differential prices based on static conditions (such as time of day) and dynamic ones (traffic). Technology is also dramatically bringing down the costs of experimentation and giving creative leaders opportunities to think like scientists by constructing and analyzing alternatives. The financial-services concern Capital One conducts hundreds of experiments daily to determine the appropriate mix of products it should direct to specific customer profiles. Similarly, Harrah's casinos mine customer data to target promotions and drive exemplary customer service.
Given the vast resources going into storing and processing information today, it's hard to believe that we are only at an early stage in this trend. Yet we are. The quality and quantity of information available to any business will continue to grow explosively as the costs of monitoring and managing processes fall.
Leaders should get out ahead of this trend to ensure that information makes organizations more rather than less effective. Information is often power; broadening access and increasing transparency will inevitably influence organizational politics and power structures. Environments that celebrate making choices on a factual basis must beware of analysis paralysis.
Further reading:
Thomas H. Davenport and Jeanne G. Harris, 
Competing on Analytics: The New Science of Winning, Boston: Harvard Business School Press, 2007. 
John Riedl and Joseph Konstan with Eric Vrooman, 
Word of Mouse: The Marketing Power of Collaborative Filtering, New York: Warner Books, 2002. 
Stefan H. Thomke, 
Experimentation Matters: Unlocking the Potential of New Technologies for Innovation, Boston: Harvard Business School Press, 2003. 
David Weinberger, 
Everything Is Miscellaneous: The Power of the New Digital Disorder, New York: Times Books, 2007.
8. Making businesses from information
Accumulated pools of data captured in a number of systems within large organizations or pulled together from many points of origin on the Web are the raw material for new information-based business opportunities.
Frequent contributors to what economists call market imperfections include information asymmetries and the frequent inability of decision makers to get all the relevant data about new market opportunities, potential acquisitions, pricing differences among suppliers, and other business situations. These imperfections often allow middlemen and players with more and better information to extract higher rents by aggregating and creating businesses around it. The Internet has brought greater transparency to many markets, from airline tickets to stocks, but many other sectors need similar illumination. Real estate is one of them. In a sector where agencies have thrived by keeping buyers and sellers partly in the dark, new sites have popped up to shine "a light up into the dark reaches of the supply curve," as Rich Barton, the founder of Zillow (a portal for real-estate information), puts it. Barton, the former leader of the e-travel site Expedia, has been down this road before.
Moreover, the aggregation of data through the digitization of processes and activities may create by-products, or "exhaust data," that companies can exploit for profit. A retailer with digital cameras to prevent shoplifting, for example, could also analyze the shopping patterns and traffic flows of customers through its stores and use these insights to improve its layout or the placement of promotional displays. It might also sell the data to its vendors so that they could use real observations of consumer behavior to reshape their merchandising approaches.
Another kind of information business plays a pure aggregation and visualization role, scouring the Web to assemble data on particular topics. Many business-to-consumer shopping sites and business-to-business product directories operate in this fashion. But that sword can cut both ways; today's aggregators, for instance, may themselves be aggregated tomorrow. Companies relying on information-based market imperfections need to assess the impact of the new transparency levels that are continually opening up in today's information economy.
Further reading:
Hal R. Varian, Joseph Farrell, and Carl Shapiro, 
The Economics of Information Technology: An Introduction (Raffaele Mattioli Lectures), New York: Cambridge University Press, 2004. 
Carl Shapiro and Hal R. Varian, 
Information Rules: A Strategic Guide to the Network Economy, Boston: Harvard Business School Press, 1999.
Conclusion
Creative leaders can use a broad spectrum of new, technology-enabled options to craft their strategies. These trends are best seen as emerging patterns that can be applied in a wide variety of businesses. Executives should reflect on which patterns may start to reshape their markets and industries next—and on whether they have opportunities to catalyze change and shape the outcome rather than merely react to it. 
About the Authors
James Manyika is a director and Kara Sprague is a consultant in McKinsey's San Francisco office; Roger Roberts is a principal in the Silicon Valley office.
The authors wish to thank their McKinsey colleagues Jacques Bughin, Michael Chui, Tony Huie, Brad Johnson, Markus Löffler, and Suman Prasad for their substantial contributions to this article.

15.1.09

How to fix the innovation gap: A conversation with Judy Estrin


http://www.mckinseyquarterly.com/Strategy/Innovation/How_to_fix_the_innovation_gap_2285

How to fix the innovation gap: A conversation with Judy Estrin
The author and tech executive says we are living off the fruits of previous research and need to seed new ideas.

17.11.08

Motrin on web 2.0

http://www.crunchgear.com/2008/11/17/motrin-screws-up-in-tweet-land/


   Merci/ thanks
   ________________________________________________________________
   Jean-François Barsoum, MBA
  Senior Managing Consultant & Practice Leader, Green + Innovation Strategies
  ibm +1.514.964.4192  ::  fax +1.845.491.2412  ::  
jbarsoum@ca.ibm.com
                                        IBM Canada: Suite 400, 1360 boul. René-Lévesque Ouest, Montréal (QC) H3G 2W6
      P Si possible, s.v.p. évitez d'imprimer ce courriel - please avoid printing this e-mail if possible

13.11.08

How Obama Will Use Web 2.0 For Change

How Obama Will Use Web 2.0 For Change


Author
CG Lynch
CIO.com
Sunday, November 09, 2008





During his campaign, President-elect Barack Obama delivered on the democratic promise of Web 2.0 technologies by using them to give voices to millions of Americans who had traditionally been drowned out by TV pundits, politicians and wealthy donors.

And he's already shown he'll continue to use them when he's in office. That was the contention made by speakers Friday morning on the third day of the Web 2.0 Summit here in San Francisco.

Three guest speakers included San Francisco Mayor Gavin Newsom, considered by many to be a candidate to run for governor in California. He was joined by Joe Trippi, the political advisor credited with harnessing the Web to build Vermont Governor Howard Dean's grassroots presidential campaign back in the 2004 democratic primary, and Arianna Huffington, founder and editor in chief of the Huffington Post (which publishes a lot of citizen journalism).

The group first reflected on the 2008 campaign. Trippi noted that innovations in the Web 2.0 space, particularly around social technologies and the proliferation of online video, allowed 
Obama to take internet-generated politicking to a whole new level than realized under Gov. Dean back in 2004, when mainly the fundraising abilities of the Web were realized.

"Back in 2003 and 2004, Facebook was just on a few college campuses," Trippi said. "All these new tools came in [since then] and changed everything."

As Trippi noted, Obama has carried Web 2.0 into his upcoming administration by launching 
Change.gov, a website that allows users (or citizens) to interact with their new president by weighing in on issues of importance to them. A user could click on "health care," for instance, where they'll be taken to a page where they can send their ideas to the new administration.

But while Obama raised an unprecedented amount of money on the Web, and many see Web 2.0 technologies as enabling his rise to power, it also left questions as to whether a gaffe can unfairly bring down a candidate in the public discourse.

Though verbal miscues for Obama were rare, during a fund raiser here in San Francisco, he was 
quoted by a citizen journalist writing for the Huffington Post that some people in small towns of Pennsylvania "get bitter...they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations."

According to Mayor Newsom, such comments can beat down a politician due to the relentless way in which information travels the internet. As politicians become more aware of that fact, and there's less of line between on-the-record and off-the-record interactions with constituents, it can constrain what comments they might make.

"Everything you say is exposed," he said. "It's an extraordinary thing. Hopefully, we can be forgiven when we make mistakes."

But Huffington and Trippi countered Newsom by noting that Web 2.0 technologies such as blogs have a way of vetting information more thoroughly than the mainstream media, which will help candidates when false information gets stated about them.

"The internet has changed Karl Rove politics," Huffington said, which drew applause from the audience. "All the fear mongering, with Bill Ayers and calling Obama a socialist terrorist all got proven wrong [on the Web]," she said.

Despite Obama's success in harnessing Web 2.0 technologies during his campaign, and using it to gather input from citizens with change.gov, Newsom said much more work needs to be done to bridge the digital divide in America.

"There are people near here that have no idea about what we are discussing," Newsom said. "They don't have internet in their homes. We have a 
huge digital divide, for the people who really need this[Web 2.0 technology] the most. The only media these folks are getting is the TV set."

24.9.08

Too funny



11.9.08

Design for Frugal Growth


Many thanks to Norbert!


Design for Frugal Growth
by Jaya Pandrangi, Steffen Lauster, and Gary L. Neilson

Cleveland, September 10, 2008 -- With the right kind of organizational design, you can expand while cutting costs. Five elements are critical: accountable business units, an aptitude for innovation, pull-based functional relationships, differentiated capabilities, and the ability to leverage scale.

To read the full Resilience Report:

http://www.strategy-business.com/resilience/rr00062


Design for Frugal Growth

by Jaya Pandrangi, Steffen Lauster, and Gary L. Neilson

9/10/08
With the right kind of organization, you can expand while cutting costs.

Illustration by Dave Plunkert

The control of costs had been its greatest strength. But it was now the greatest weakness. The company had spent so many years trying to reduce expenses that this imperative was hardwired into its practices, processes, and organizational design. When executives tried to shift gears, to expand into new markets and introduce new products, those old ways of doing business also had to change.

That was the story of the Amberville Corporation, a major U.S. brand-name consumer packaged goods (CPG) manufacturer. (This company is fictional, a composite of three companies; although all three have been disguised, the details are based on in-depth observation and are typical of many companies in the industry.) Like many other consumer products companies, Amberville had once been an avid innovator, responsible for many new household-name products. But its priorities had swung, like a pendulum, from growth in the 1980s to cost cutting in the 1990s. Now, in 2006, the pendulum was swinging back to growth.

But the company was ill-equipped for the transition. To keep costs down and control its large and far-flung product line, Amberville had built up a vast central operation at headquarters. New product launches had to be approved at four different levels: brand, division, region, and headquarters. Senior ex­ecutives in functional areas were expected to weigh in at least twice during the development cycle on such issues as capital costs and feasibility. Managing the computer systems and functions to support dozens of brand-based and regional operations groups was an immense task involving hundreds of people and a major focus on HR systems, reporting relationships, and recruiting programs.

Meanwhile, consumers were growing increasingly sophisticated. They wanted more information about Amberville's products. So did institutional customers, such as schools and restaurant chains. Some Amberville marketers saw the opportunity to build Web sites and use other online channels to connect directly with consumers. But these efforts faltered amid the sheer complexity of multiple product categories. And their failure led many people in the company to conclude that even the business units that were closest to Amberville customers had lost their market focus and speed.

There was other evidence that all was not well. For example, when the company expanded its branded line of ice cream, the unit was consistently slower than competitors in launching new flavors. Business unit leaders spent much of their time looking inward, negotiating with the executives at headquarters who made the final decisions about personnel, product launch timelines, and many other operational issues.

Amberville's dilemma is typical of many consumer packaged goods companies in North America and Europe today. Their most familiar home markets are stagnant; for the past 20 years, consumption of consumer goods in most product categories has grown only at the rate of population growth plus inflation. And consumer behavior is fragmenting; supermarket shoppers are increasingly likely to switch stores and brands. At the same time, mergers and acquisitions among manufacturers have consolidated the industry, creating larger competitors with global reach. But new consumers in emerging nations — those in Asia, Latin America, eastern Europe, and the Middle East — are eager for products. Simultaneously, around the world, global retail chains like Tesco and Wal-Mart are applying their expertise at squeezing manufacturers' margins.

As consumer packaged goods companies have struggled to create and execute growth strategies, investor expectations for the sector have remained high, and raiders continue to stalk the producers of popular brands. It's no wonder that the industry has devoted its attention, for at least a generation, to reducing cost, streamlining operations and creating economies of scale by consolidating research, manufacturing, and distribution. This approach has paid off in the past; most CPG companies have survived. But now, having turned themselves, in effect, into supercharged cost-cutting machines, how can these companies suddenly invest in the risky arenas of emerging markets and fundamental innovation? And if they can't, how will they compete when frugality alone is no longer sufficient?

Although the choice between growth and frugality is passionately debated in many companies, it represents a false dichotomy. Growth and cost efficiency should reinforce each other. Logically, cost efficiencies should make it easier to devote more resources to growth, and the launch of new products and services should lead to innovations in efficiency. Why don't things work that way in practice? Often because of organizational designs that, consciously or not, were put in place during the years of cost cutting. A CPG company, in particular, cannot move forward unless its leaders can diagnose and fix the barriers to growth that have gradually become a fixture of their enterprise.

The Limits of Good Intentions
When leaders in the sector begin a growth initiative, they often start by declaring a commitment to the new strategy, enlisting employee hearts and minds, and assuming that some kind of cultural and behavioral transformation is needed. But they overlook the organizational design, which actually drives behaviors and indirectly determines whether the rest of the growth strategy can be executed correctly.

For example, in many large organizations, the way the incentives are set up frequently clashes with the growth strategy. The corporate leaders promote bold and big innovations. But they leave in place the target demanding that all new products show a profit within two years or face being shut down. This creates almost irresistible incentives for business unit leaders to provide "work-arounds" that make them appear to generate the requisite profits, at least in the short run. They might bury costs in the most successful product lines or manipulate shipping times so that the numbers will look more favorable.

At Amberville, the core demanded a major new commitment to customer service from the business units, and they all complied — but in a halfhearted way that faded from view within six months. It would be easy to say that the local business unit leaders were resistant to change, but the truth was much more compli­cated. These leaders saw the value of customer service, but they had neither control nor influence over the customer service process, they lacked easy and regular communication with the leaders of that function, and their incentives favored other priorities. It was much easier to focus on other ways to deliver the results against which they would be measured. All the goodwill and strategic understanding in the world could not overcome those organizational disabilities.

The leaders at Amberville did, however, ultimately change their behavior, and not just superficially. They revamped the organization in ways that dramatically increased revenues without increasing investment. We have seen the same sorts of results firsthand in several other consumer products manufacturers in recent years. One independent condiment company, after redesigning itself, doubled its value in less than five years. All of these manufacturers have initiated significant changes in their day-to-day practice through a shift in their organizational design — specifically, by setting in place five critical enablers of accountable, innovative, auton­omous, and linked behavior. (See Exhibit 1.)

The list of enablers in the growth triangle will not be a surprise to many managerial veterans. These factors are known for their impact on growth in a variety of industries. Who could argue with having truly accountable business units, a genuine capacity for customer-focused innovation, functions that successfully serve the needs of the frontline business units, capabilities that meet the needs of a differentiated customer base, or the ability to take practices and products to scale around the world? But companies often struggle to achieve these enablers, and sometimes give up trying. With a sub­stantial shift in organizational design, the behaviors and practices of frugal growth naturally follow.

Accountable Business Units
Just before its redesign, Amberville had 25 global divisions, all located in the company's headquarters in the United States. Over the course of the following year, they were reconfigured into 64 market-facing business units — some devoted to regions such as southeast Asia, others to product brands in categories such as ice cream and chewing gum. Quadrupling the number of Amberville's business units also meant quadrupling the number of business leaders, and giving each responsibility for his or her operations.

Businesspeople often talk about "owning" their assignment, but it's not always clear what that means. At Amberville, "ownership" meant taking on a dramatically increased level of accountability. The managers of business units now defined their market, operations, and strategic space to decide how they would deliver superior growth. Business units were granted greater control over the cross-functional resources assigned to them, including the sales and customer service staff. Business unit managers could deploy these resources flexibly on the basis of shifts in market needs. In­formation technology staff were assigned to work with each business unit to help it obtain faster, more complete access to market and customer data.

Before the reorganization, the P&L-based budgets for marketing, R&D, sales, and other functions had been set by the core, and the business units had to operate within these limits. For example, if a business unit had received US$100 million for its R&D budget, that was the limit of its innovation spending. Now, each business unit leader had a top-line revenue and a bottom-line profit target. All the funds in between could be deployed as needed. If one product's strategy de­pended heavily on innovation, the business unit leader could invest $150 million in R&D, taking the money from other functions. Meanwhile, a business unit whose strategy was based on operational excellence might cut back on R&D and invest instead in production skills.

Amberville's core was now treating the business units the same way a heavily involved private equity investor might treat its favored companies. The business unit leaders rapidly learned firsthand what it was like to be an entrepreneur. They defined their strategy, they executed it, and they reaped personal rewards if they succeeded and suffered personal consequences if they failed to deliver their targets. Their own money wasn't at risk, but their career advancement was, and they had fewer institutional means of masking poor performance. Business unit leaders came to think of their new system as "autonomy with boundaries": They could accomplish much more on their own, but their limits and reporting responsibilities were clearer and less ambiguous than they had been before.

Meanwhile, the jobs of the division heads and core leaders shifted from operational involvement to guidance. They could approve requests for funds, help de­velop investment plans, give advice on the hiring of key players, and assist with customer relationship development. They did not have the authority to create strategies or manage operations, but their own careers were closely dependent on the success of the more junior business unit leaders. "It's like being a football coach," said one core leader. "You're not directly playing, but you're still responsible for the business. If your team loses three years in a row, you'll still get fired."

Amberville's experience is typical. When business units — whether organized by geographic region or product and service category — are accountable for their strategy and operations, they deliver superior growth. They can execute their plans far more quickly, without having to wait for approval and second-guessing the internal politics of the core. They have more to gain from delivering results, and no place to hide when performance falls short. Decision rights go to those who have the closest understanding of consumers and the external market. Because accountable business unit leaders pay close attention to business practices, the learning curve of the entire operation accelerates. Indeed, the business unit becomes more skilled at reducing overhead than ever before, because its leaders know that they can rapidly apply their cost savings to profitable investments as they see fit. So much for cost and growth consciousness being at odds.

Providing this type of virtual entrepreneurship to business units requires several organizational shifts. The local line leaders need the authority to make decisions, the capabilities to take consumer information into account, and a sustained trust that the core will not block progress and will appreciate results. The IT and information-management systems are consciously designed to deliver the right information to the right parts of the organization at the right time. For example, extensive day-to-day data stays in the business unit; if it reached the corporate core, that would be an invitation to micromanage. But quarterly reports to the core include more detail than in the past, so that division heads and business unit leaders can talk about long-range patterns in customer response or costs.

One powerful means of creating autonomy with boundaries is the "CEO contract": an agreement with the business unit leaders that specifies top- and bottom-line targets, along with the rewards (including personal bonuses) for achieving those targets and the penalties for missing them. The Amberville CEO contract was a very informal document, with three critical features. First, every business unit leader got one. Second, each contract was specifically designed for its business unit, spelling out particular goals for revenues, profit, and two or three other numerical metrics. Third, the contract specified the qualitative metrics that encouraged teaming across the organization.

This last feature of the CEO contract helped mitigate one unfortunate tendency of accountable business units: their natural disinclination to share ideas, knowledge, or resources with the rest of the company. For example, shared advertising expenses, particularly for major marketing events, had long been a bone of contention. Every business unit was expected to pay a share, but some divisions benefited far more than others. Now, thanks to the contract, it was made clear: There would be only a limited number of shared ad campaigns, but each division would contribute.

The contract also established a few minimum standards and policies that protected the corporation, such as employee safety practices. For example, many factories in emerging nations do not require people to wear safety goggles on the shop floor, but Amberville factories always did, because the performance contract insisted on it. In other respects — for example, in the details of plant construction and the design of the assembly line — the local business unit maintained control.

Aptitude for Innovation
In consumer products, the most profitable innovations vary widely by category. In food, for example, rapid in­troduction of new flavors can be critical. There are also opportunities for breakthrough innovation, as Groupe Danone discovered with its Activia yogurt line, which contains live bacteria with a claim of aiding digestion. More opportunities for breakthrough innovation exist in personal and home care, as Procter & Gamble Com­pany has shown with products including the Swiffer mop and antiwrinkle creams. (See "
P&G's Innovation Culture," by A.G. Lafley, s+b, Autumn 2008.)

But the most critical factor is the connection of innovation to consumer insight. The most effective way to facilitate this connection is with a change in the organizational relationship between the business units and the corporate core. The corporate core should be funded to conduct longer-range research that business units would not undertake (for example, the kind of fundamental research in biotics that led to the launch of Activia). Individual business units should develop the product extensions and process innovations that they need to stay close to their consumer markets. And some internal market-style mechanism should allow successful innovations to be quickly shared across the enterprise.

At Amberville, the R&D staff at the corporate core had traditionally worked on three- to five-year projects that they had proposed themselves. Business unit leaders had usually reacted by saying, in effect, "This has nothing to do with what we are trying to do." Now, as part of the redesign, Amberville created an internal R&D market where innovation leaders sought buyers for their ideas. If they could not interest a business unit leader, they were free to take the idea outside the company.

Pull-based Functional Relationships
One aspect of organizational design that inhibits growth is the relationship between business units and functions. Although functions often operate in all three components of the organization — the core, the business units, and the infrastructure all have information technology, human resources, and finance staffs — the highest leverage lies in the relationship between business units and the infrastructure.

The way to increase the value of support services is through pull-based functional relationships. The business units pull services from the infrastructure, specifying their requirements and sometimes codesigning them, instead of having the services pushed on them in a company-wide package.

Pull-based functional relationships have existed for years. Many businesspeople still find the idea discomfiting; it means giving internal functions the autonomy to behave like a third-party provider. But a well-designed pull-based functional relationship becomes like the relationship between a loyal customer and a regular sup­plier. The supplier (the functional infrastructure team) cares about the customer's opinion; the customer (the business unit leader) treats the functional staff as he or she would treat any favored external supplier, not like an internal team forced to jump through hoops. This level of mutual respect, when it occurs, is a far cry from the unfortunate dynamic in many companies, in which the business unit leaders and the functional infrastructure team tend to see each other as adversaries.

How can a company enable this type of relationship? One approach is to employ the same kind of service-level agreement (SLA) that companies use for shared services and outsourcing vendors. The trick is setting up the SLA internally and making it simple but effective. This contract establishes the types of services to be delivered, the internal cost of providing them (which can increase as the service improves), and the requirements for each side. At Amberville, SLAs are now required for all functional services, including logistics, finance, and IT. Any functional team, reporting through the infrastructure chain of command, effectively has a pool of 64 customers — the business units — and an incentive to learn from its services to each of them.

Differentiated Capabilities
No organization can be best at everything. The capa­bilities of a company are limited by the resources available, the skills of its population, the evolution of its existing infrastructure, and its experience. Choices must be made at the corporate core about the capabilities in which the organization will invest and the support to give them. The most important capabilities to invest in are those that distinguish a company from its competitors — or, as Alexander Kandybin and Surbhee Grover put it, those that can't be copied. (See "
The Unique Advantage," s+b, Autumn 2008.)

One well-known example of a differentiated advantage is the "hot-fill" capability that PepsiCo Inc. gained in 2001 when it merged with the Quaker Oats Com­pany (and thus acquired the Gatorade brand). Hot-fill technology, used to bottle beverages such as juices and vitamin drinks without the need for preservatives, had previously been limited to relatively small brands such as Snapple (which had invented it); now Pepsi rolled out the technology in its Tropicana brand and in a new joint venture in bottled teas with Lipton, which was the first offering of its kind and which has since enjoyed an advantage over competitors.

A portfolio of capabilities is built primarily at the corporate core, because it involves significant long-term investment. (As with Pepsi, it may also involve acquisition.) The first step is a systematic evaluation of the "leverageable" assets of the company, those distinctive capabilities that determine what types of growth might be supported. Capabilities can be found in a wide range of functions, such as supply chain, manufacturing, product development, consumer insight, marketing, brand management, and customer management. Business units may be invited to collaborate in this as­sessment, making the case for the capabilities that they find most useful in the market. But ultimately, the corporate core makes these choices and investments.

The difficulty of this task and the critical role of the core executive team are often underestimated. Not every capability is a candidate for the core portfolio; some contribute strongly to growth while others lag. Corporate leaders must place bets on which business units will be most adept at using, learning from, and developing the company's distinctive skills and technologies. These business units need aggressive funding; others should be more consciously managed for the bottom line, with a short-term focus on innovation.

Ability to Leverage Scale
As consumer products companies meet global demand, they bring capabilities along. Products and brands must be customized for new markets. A wide variety of retailers must be engaged as customers. And old practices must be adapted to new cultures and locales.

Leveraging of knowledge and capabilities on this global scale requires direct networking among business units, removing the bottleneck at the corporate core. Because Amberville had never built up those sorts of contacts, its leaders studied companies, like Johnson & Johnson, that had a good track record. J&J moves people among its business units frequently, encouraging employees to maintain their presence in informal networks with their former coworkers.

Amberville is now finding its own ways to foster global networking. For example, its Middle East business unit leads research and development in the frozen-drinks category, because several frozen-drink researchers are located there; the rest of the regions adapt the flavors that come out of their work.

Management fashion is full of stark choices: Centralize or decentralize? Global or local? Cost or growth? There's a long-standing proverb in the system dynamics field: "You can have everything you want, but not all at once." In the 1990s, many consumer products companies decided that they would give up growth in order to have the security of lower expenses. Now they are riding the pendulum back to growth. But in the end, those who succeed in growing their company will do so with all their frugality intact. With an organization design in place that balances the roles of the core, the business units, and the functional infrastructure, they should be able to have it all.

Author Profiles:


Jaya Pandrangi is a principal with Booz & Company in Cleveland. Her work focuses on strategy as well as sales and marketing effectiveness for consumer products companies.

Steffen Lauster is a partner with Booz & Company in Cleveland who focuses on strategy development and revenue management initiatives for consumer products clients in the U.S. and Europe.

Gary L. Neilson is a senior partner with Booz & Company in Chicago. He helps companies diagnose and solve problems associated with strategy implementation, organizational effectiveness, and efficiency.

Also contributing to this article was Booz & Company Partner Leslie Moeller.
 

10.12.07

The Many Errors in Thinking About Mistakes: When things go wrong, as they inevitably do, we focus on flagellating ourselves, blaming someone else or covering it up. Or we rationalize it by saying others make even more mistakes.What we do not want to do, most of the time, is learn from the experience.





November 24, 2007
Shortcuts
The Many Errors in Thinking About Mistakes
By ALINA TUGEND

OF the many mistakes I have no doubt made over the last few weeks, two stand out: One cost me money and one cost me some pride.

I made an error in an article, and of the thousands who read it, a few gleefully e-mailed me about it.

I corrected it, although I sheepishly admit my first — though fleeting — instinct was to avoid owning up.

In the second case, in a flurry of zealous organization, I sent in a check to cover a bill for my husband's monthly train pass. It turns out that he pays by direct debit. I canceled the check.

Then we got a notice that we were being charged $20 for a bounced check.

Neither mistake was on the scale, with, say, amputating the wrong leg or causing two planes to collide.

But they bothered me and made me consider how we are taught to think of mistakes in our society.

"I think it's a very difficult subject," said Paul J. H. Schoemaker, chairman of Decision Strategies International and teaches marketing at the Wharton School of the University of Pennsylvania. "There's a lot of ambivalence around making mistakes."

On one hand, as children we're taught that everyone makes mistakes and that the great thinkers and inventors embraced them. Thomas Edison's famous quote is often inscribed in schools and children's museums: "I have not failed. I have just found ten thousand ways that won't work."

On the other hand, good grades are usually a reward for doing things right, not making errors. Compliments are given for having the correct answer and, in fact, the wrong one may elicit scorn from classmates.

We grow up with a mixed message: making mistakes is a necessary learning tool, but we should avoid them.

Carol S. Dweck, a psychology professor at Stanford University, has studied this and related issues for decades.

"Studies with children and adults show that a large percentage cannot tolerate mistakes or setbacks," she said. In particular, those who believe that intelligence is fixed and cannot change tend to avoid taking chances that may lead to errors.

Often parents and teachers unwittingly encourage this mind-set by praising children for being smart rather than for trying hard or struggling with the process.

For example, in a study that Professor Dweck and her researchers did with 400 fifth graders, half were randomly praised as being "really smart" for doing well on a test; the others were praised for their effort.

Then they were given two tasks to choose from: an easy one that they would learn little from but do well, or a more challenging one that might be more interesting but induce more mistakes.

The majority of those praised for being smart chose the simple task, while 90 percent of those commended for trying hard selected the more difficult one.

The difference was surprising, Professor Dweck said, especially because it came from one sentence of praise.

They were then given another test, above their grade level, on which many performed poorly. Afterward, they were asked to write anonymously about their experience to another school and report their scores. Thirty-seven percent of those who were told they were smart lied about their scores, while only 13 percent of the other group did.

"One thing I've learned is that kids are exquisitely attuned to the real message, and the real message is, 'Be smart,'" Professor Dweck said. "It's not, 'We love it when you struggle, or when you learn and make mistakes.'"

As we get older, many of us invest a great deal in being right. When things go wrong, as they inevitably do, we focus on flagellating ourselves, blaming someone else or covering it up. Or we rationalize it by saying others make even more mistakes.

What we do not want to do, most of the time, is learn from the experience.

Professor Dweck, who wrote a book on the subject called "Mindset" (Random House, 2006), proved this point in another study, this one of college students. They were divided into two camps: those who did readings about how intelligence is fixed, and those who learned that intelligence could grow and develop if you worked at it.

The students then took a very tough test on which most did badly. They were given the option of bolstering their self-esteem in two ways: looking at scores and strategies of those who did worse or those who did better.

Those in the fixed mind-set chose to compare themselves with students who had performed worse, as opposed to those Professor Dweck refers to as in "the growth mind-set," who more frequently chose to learn by looking at those who had performed better.

Mr. Schoemaker would agree. He was the co-author of a June 2006 article for the Harvard Business Review called "The Wisdom of Deliberate Mistakes." Among its theories is that there is too much focus on outcome rather than on process.

If businesses and people are not making a certain number of mistakes, "they're playing it too safe," he said.

The resistance to making mistakes runs deep, he writes, but it is necessary for the following reasons, which he outlined in the article:

¶We are overconfident. "Inexperienced managers make many mistakes and learn from them. Experienced managers may become so good at the game they're used to playing that they no longer see ways to improve significantly. They may need to make deliberate mistakes to test the limits of their knowledge."

¶We are risk-averse because "our personal and professional pride is tied up in being right. Employees are rewarded for good decisions and penalized for failures, so they spend a great deal of time and energy trying not to make mistakes."

¶We tend to favor data that confirms our beliefs.

¶We assume feedback is reliable, although in reality it is often lacking or misleading. We don't often look outside tested channels.

Of course, there are mistakes and then there are mistakes.

"With children, you want them to make mistakes, but not end up in prison or in a wheelchair," Mr. Schoemaker said. One also has to weigh the consequences. We want people who run nuclear power plants or fly planes to avoid mistakes as much as possible.

But most of us are not holding people's lives in our hands and can stand to take a few more chances.

"Unfortunately, the people who most need to make mistakes are the ones least likely to admit it, and the same is true of companies," Mr. Schoemaker wrote.

Of course, there are stupid mistakes, or what Stanley M. Gully, associate professor at the School of Management and Labor Relations at Rutgers University, called "unintelligent failures."

After all, nobody wants a worker who keeps making the same mistake, and "if we fail and don't learn from it, it's not an intelligent failure," he said.

Professor Gully and other researchers have looked at ways of training people to do complex tasks and found that in some cases encouraging them to make mistakes works better than teaching them to avoid them.

Those who were good at processing information, open to learning and not overly conscientious were more effectively trained if they were persuaded to make mistakes.

"We get fixated on achievement," he said, but, "everyone is talking about the need to innovate. If you already know the answer, it's not learning. In most personal and business contexts, if you avoid the error, you avoid the learning process."

But old habits die hard. I want to be more open to — or less afraid of — making mistakes. But if you catch an error in this column, do me a favor. Keep it to yourself.

E-mail: shortcuts@nytimes.com