Cost, Credibility, and Open Innovation

Innovation seems to be a mantra for a business survival, paving the path for prosperous future. In business, it's not just about technology nor something merely new. It's about positive change leading to increased productivity and business value.

Some put it that innovation sources out from creativity and, in proceeding with the implementation, involves some risks. As risk taking is in this equation, an undertaking that could put a business into liability, those launching a (radical) innovative change shall first earn credibility. As such, it would get management trust and proper funding to put it in place.

In this regard, it's interesting to read one CIO - those position responsible for IT for the business - shared his thoughts in a magazine (forgot the name and publication) about the role. First, it should become a Cheap Information Officer to build the credibility before functioning fully as a really Chief Information Officer as it's supposed to be. Once it gets all in order and serve the business purpose, you could then tranform into Chief Innovation Officer.

I have been, to some extent, seeing this in some organizations. It gone well for some. On another case at worst, it should have catiously been managed: some :innovation" initiatives went thru unchallenged, with fancy technology introduced, the chnages that sometimes be well understood to relate to building a landmark for the chief. A personal image building that incurred some hidden costs to the business.

The lanscape of innovation is now changing. And it changes very fast. Previously (and it is still now for some), innovation is a managed proprietary initiative (R & D, or even sacred activities for some) conducted largely inside the organization. Nowdays, it gets connect beyond corporate walls: the new face of innovation involving people outside from suppliers, customers, independent inventors, and university labs.

Internet technology, Web 2.0, and the need for best utlizing all creative talents available, more flexible work environemnt gave birth to Open Innovation unimagnibale before: collaborate inside-out and co-create product and services borderless and in real time. There would always be a lot more smarter people in the world outside the wall of corporate offices.

The game has been playing a lot more now. Wikipedia, the online encyclopedia, is a living and continually expanding global reference work. Wikinomics, abook written by Don Tapscott and Anthony D. Williams, becomes a new phenomena on how mass collaboration changes everything. A success story of Canada-based Goldcorp Inc., in finding more gold deposits after collaborating with outside experts by openning up their proprietary geological data for sharing. In March 2000, the "Goldcorp Challenge" was launched with a total of US$ 575,000 in prize money available to participants with the best methods and estimates.

Check out at Innocentive, Inc., where the world innovates: an Open Innovation community to earn money while solving some of the toughest problems facing the world today. Online marketplace with challenges to solve in a wide variety of disciplines, from Business and Entrepreneurship to Engineering and Life Sciences: awards from $5,000 to $1,000,000. Challenges are posted by corporations, government agencies, and nonprofit organizations. Many others are available to tap and utilize.

Henry William Chesbrough in Open Innovation: The New Imperative for Creating and Profiting from Technology, addresses that companies can no longer afford to rely entirely on their own ideas to advance their business, nor can they restrict their innovations to a single path to market.

What is CIO now ? Get the business to collaborate and craft a way to innovate by best utilizing outside experts.

Investing in Talent Management

I can not stop questioning myself whenever it comes to recruitment interview for getting new hires. Admitedly, we often did not invest enough time to get things really well prepared, most likely rely on our HR colleagues to get stuffs arranged. They get to the one called Behavorial Event Interview, said by some to have a high accuracy to explore candidates' comptency, potentials, and to analyse the gap.

First thing first, we shall know what we want. It's not just a position title, or job description at best. What kind of specific qualities we are looking for to go into our workforce to translate into a business success. It is a highly skilled techies ready for a single contribution type of job ? or a generalist with consulting background at ease to speak with the language of business ? This is on top of specific disciplines being on hire - be it IT, Finance, Facility Engineer,..etc. Interesting enough, a famous study by McKinsey for The War for Talent, highlighted that most companies don't really know what they want. They must find out, and quickly, or their recruiting programs will be flawed before they even begin.

War for Talent

Talent management , emerged in 1990s and continues to be adopted, refers to the process of developing and integrating new workers, developing and keeping current workers and attracting highly skilled workers to work for your company. The War for Talent, based on a research study in 1998 about 77 companies from a variety of industries, remains relevance until today and is a good base reference. Even for companies where the dominant strategy is to spot talent early and train it within, the study suggests considering regularly hiring senior executives from outside. Is it a failure of internal development pipeline ? No, it suggests to view it as a way to accommodate rapid growth, refresh the gene pool, and calibrate the internal talent standard.

Better talent is worth fighting for. On recruitment process, most big companies still are in passive mode: run thru vacancy ads in newspapers, confidently expect that best talent outside would be attracted to appy to the big names. I doubt it work quite well. At the interview moments of having candidates of this type, I was always wondering if there were still many better talented people outside that would not give a damn to apply to a newspaper ads. I believe so and we are adressing it with our HR to reach beyond. Some companies are spotting great talent by constanttly looking around - competitiors, suppliers, customers.. and even the military!.

Rewarded Accountability

While HR is tasked to oversee broad spectrum of workforce and talent managment, the accountability shall be extended to line managers to develop, develop, and develop their people. Recruitment is the start of the talent management pipeline. We offten do it occassionally. It is very rare to see that bonus is tied in with managers' skill on managing people. Even ability to recruit talented new people goes unrewarded. Probably, we shall take lessons learned from the member-get-member marketing scheme. Some headhunters, to some extent, put it into practice to get people for their clients.

A book by William Poundstone, How Would You Move Mount Fuji ? , provides some insights on Microsoft's role in changing interview practice. The hiring focuses on the future tense, accepting rather than resisting the "job candidate as blank slate". Hire for what people can do rather than what they've done.

Future Investment, Worth Some Disruptions

So we ought to get well prepared for the prime time - dedicated time for recruitment interview. Moving along, building organization capability with structured people development. Putting good talent beyond his/her current domain and reach, as part of managed job assignments, could certainly be a very effective development. There is nothing worse than assuming a job that is in degradation of our experience and abilities.

On our sphere of influence, we tried to put job rotation, people movement into performance metrics. The implementtaion is still posing challenges to some leaders. Managers are most of the time still worried that moving people around is not worth the disruption. Well, we got to have a little pain to breed overall benefit for the whole organization success.

A little disruption that oscillate the organization to a new height of performance level into the future is worth investing.

Performance Indicators - Missing the Key

As the saying goes, "what gets measured, gets done", we have instutionalized a number of measuremens and mechanism to keep track on stuffs with the business operations. Good, but beware that we might loose sight of the real purpose.

In a breakfast with a colleague manager of mine a few days ago, he was appreciative about how much lot of data that we have been collecting in day-to-day operations. People do follow procedures to get the data and information expected from them. Yet, he complained, how little analysis that our guys are doing with those data. If they managed to spend some time doing some analysis, there could be a lot of improvements with many activities be done differently with more effictive and efficient.

As we measure things, we would like to track those contributing to the "success factors". Stemming out from organizations' Vision-Mission, Stretegic Goals, and Objectives comes CSF - critical success factor. It then is further quantified into KPI - Key Performance Indicators, supposed to be the selected few that we shall focus on for a prticular business domain to breed expected success. In practice, I often found that it's too many details to measure and review in a given time that business leader could be distracted, lacking the information focus. The key is lost deep in the the ocean of oprational information metrics.

One of our guys was struggling to collect data and figure out KPI for the IT shop that he should submit to a regulatory body. It consists of 10 category of the so-called KPI with each containing 3-4 items to measure. Overall, it deals with 30 to 40 metrics that we called key performance indicators! And there are more than 10 completely-different companies (and at corporation level, be comptetitot to each other), oil and gas, that the IT shop shall submit this KPI to the IT dept of a regulatory execution body that monitor oil and gas companies. While the idea is 'noble' to have a meaningful collection of metrics to compare and benchmark, the number of KPI is too much to a non operating body to challenge the information for any strategic decision making.

To stay on top, to possibly make any necessary strategic direction, I suppose that 3 (three) top categories are enough to start with: Cost Performance, Value Creation and Realization, and Synergy and Collaboration. With 2-3 items for each category, the energy can be directed to the focus of guiding the proper IT investment and leveraging it across for the benfeit of all. As such, it would not interfere with details of business operation of each competing company. Still, the regulatory body, repressenting the host government as the major stake holders, could still stay on control.

Unfortunately (fortunately ?), I was somehow get involved in the process - although a bit late coming into the game. It was too late to re-direct the whole things. or probably, it's just better the stay the course. Just make sure that we do not just collect all data possible without a clear path forward to act on them. The end in mind shall be then - "compare and decide", not just "review and store".

A similar reminder from an articel in HBR (Harvard Business Review), Stop Making Plans, Start Making Decisions. Debate and Decide, instead of just Review and Approve. And remembering Pareto, get focus to the vital few, as not to miss the key in trivial many.

Global Reach and Cost Disparity

As always, Fortune Global 500 portrays an amazing notion on how big corporations getting bigger, with the biggest ones generating revenues much, much more than state budget or spending of almost all developing countries.

The top lists this year have an interesting outcome. The top 10 largest companies, in revenue, are those old names, with Walmart sitting on the top with US$ 378,799 millions.

1. Wal-Mart Stores (~$ 379B) ....... 6. Chevron (~$ 211B)
2. Exxon Mobil (~$ 373B) ............ 7. ING Group (~$ 201B)
3. Royal Dutch Shell (~$ 356B)....... 8. Total (~$ 187B)
4. BP (~$ 291B) ....................... 9. General Motors (~$ 182B)
5. Toyota Motor (~$ 230B).......... 10. ConocoPhillips (~$ 179B)

By profits, Exxon grabs the top list with US$ 40.61 billion or nearly $ 78,000 per minute! Stacked on the US$ 18 billion club are Chevron (no. 6, $ 18.7B), Petronas (no. 7, $ 18.1B), Total (no. 8, $ 18B). Thease are all oil companies, benefititng from high oil prices. Amazingly, Petronas is the no. 95 by revenue, yet its profit is at par with two of the super major oil companies, Chevron (no. 7) and Total (no. 9). With revenue about one third of these two big guys, Petronas posted profit against revenue (27%) about three times of Total and Chevron. How can it be ?

Fortune 500 described that Chevron "faces several challenges from falling oil production to difficulties in finding new resources". Beyond this, I presume that for Petronas being operated out of Malaysia contribute to lowering the cost of doing business -- although not quite sure enough about the significance.

It's about globalization, and those big corporations of "multi-nationals". Automation technology, creative efficiency, and professional disciplines have been contributing to a big leap in productivity in light of growing business operations globally. It's been the "priviledge" of much developed economy to have those productivity enabling characteristics. With the advance of Internet digital technology, growing competency of people in less developed countries, and easier flow of people around the globe, the opportunity is now widely open to developing countries. As company operations are becoming global, the needs for more standard products and services are more apparent to breed overall efficiency. Several global companies are still relying on products and services that are "manufactured" by and in developed countiries with more "advance" technology, yet with labor-related cost relatively much higher. The aim is to get an overall good cost-performance: higher labor cost is offset by higher productivity. This product-service package is then deployed to all their business units across the globe.

The above is no longer true for mass products. As economic disparity still in a wide gap, re-locating manufacturing plants to low-cost countries have been quite successful to lower down cost of business. Products made in China has been flooding the world. Services and eventually products made with more advanced technology, and specialized services would be on the next pendulum shift. Offshoring jobs to India have become a business phenomena. Among other things, I suppose that Petronas is taking benefits by having Malaysia as a base of operations as compared to Total (France) and Chevron (USA).

The challenge for global companies is to agressively move around their "factories" around the globe to benefit from low-cost economy whrever appropriate. Management overhead would be higher as it would face a complexity of managing research centers, pool of expertise, products design and the like across various locations in the world with different timezone and cultural barrier. Once it could be properly managed, the overall cost of products or business would be more efficient, lower that at the end would book more dollars to the bottom line.

Although there might be some concerns of "national interest" (employment in the base countries / HQ), the global reach would benefit the world as whole providing a net positive opportunity to all. It is going toward a new equilibrium of the world while shrinking the economic disparity. It shall be done on mutual benefits, business-like undertaking, not on the basis of (pure) charity. It is, I would suppose, within the spirit of capitalism. Or as Bill Gates once stated, a creative capitalism.