Vision & Execution’s Weblog

Despite the pipeline of 60 venture-backed companies currently in registration for IPO in 2012, M&A is still the most common exit for most startups.  And prognosticators forecast an improving M&A market after the slowdown in the 2^nd half of 2011.  So how do companies who position themselves for acquisition and those who acquire them deliver on the value they anticipate.  Industry data reminds us time and again that the failure rate for mergers and acquisitions hovers between 70% and 90% despite the annual $2 trillion spent every year.

A key criterion for success when acquiring for innovation’s sake, as opposed to scale economies, is laying the foundation for fundamental change in both the business model and the organizational culture.  Buying what could be considered disruptive or bleeding edge IP or products means that business as usual doesn’t cut it.  Few companies who go on buying sprees soften the beachhead internally for the degree of change required.  Incentives and other management metrics are not aligned in advance with the potential of the new technology so old and new management are caught in the crossfire while making important strategic decisions about budget and other business priorities.

Achieving the potential business value of an acquisition means losing the emotional attachment to the cash cow business(es) that enabled the acquisition in the first place.  It requires a clear understanding of where the creative destruction within the organization should occur and puts incentives in place for the organization to create a new business from the ashes.

Let Vision & Execution work with your teams to facilitate decisive action around new business models and product roadmaps as you plan for or seek to integrate innovative acquisitions.

Happy New Year from Vision & Execution!  We hope 2010 exceeded your expectations and that 2011 looks even better.

What do the prognosticators say about 2011? Will it be better or worse than 2010?   What industries and, for that matter countries, are expected to prevail?  It was quite interesting to take a survey of 2011 predictions…the topics of the predictions were generally more insightful than the predictions themselves.  Some recurring themes…

Here are some interesting sites to check out for more detailed predictions:

On the economy:

• CNN
• Christian Science Monitor

On innovation

• Board of Innovation
• Entrepreneur

On social media

• Social Media Today
• FastCompany
• Mashable
• Search Engine Land

On technology

• CNN Tech
• Trend Hunter
• Infoworld
• McKinsey (from August 2010 but still relevant)

On cleantech

• Gigaom
• Always On
• Greentech Media

On mobile

• GetJar
• Business Insider
• Wireless Week
• Business Insider again

On business analytics

• eCRM Guide
• Infotech

Perhaps the most interesting report about 2011 predictions were those made 70 years ago by seven 1931 Visionaries.

What trends or predictions will impact your business?  And, how can we help?

McKinsey & Company released their latest Global Survey – this one focused on Innovation and Commercialization.  There were many significant highlights from their research.  Below are a few that stood out for me.

50% of businesses expect to achieve growth outside of their core business – 32% by growing beyond the boundaries of the core business and 16% by growing as a result of adjacent opportunities.  In either case half of the companies surveyed are looking outside their comfort zone for growth.  What is problematic with this goal is that most companies don’t change their process for inputs.  Or, in other words, companies don’t change how they generate innovative ideas and collect data about the likelihood for market success for new innovations.  It’s the same one day fly in – brainstorm – prioritze – fly out process that regurgitates all the projects that were previously killed. Garbage in, bad products out.

Over 60% of companies acknowledged that they are not good at commercializing new products or services.  The challenge McKinsey identified appears to be in handing off ideas to those who would convert these ideas to commercially viable products.  Companies appear to have a significant talent gap in finding folks who can translate vision into reality…that’s not surprising since most folks are good at one or the other.  But it may also be a factor of garbage in, bad products out.

Another issue associated with the successful handoff of new ideas to market reality is picking the winners; 43% said their top challenge was choosing which ideas to move forward.  Not surprisingly 40% use an ad hoc process to make these commercialization decisions and 77% do not address these decisions at corporate leadership meetings as a regular agenda item.  New ideas don’t just surface during the annual strategic planning process – this needs to be well-funded ongoing initiative.

Vision & Execution has experience helping companies improve their inputs.  We run innovation workshops that help shake up corporate mythology about what business a company is really in.  When you rethink the way you define the business you’re in, you increase your clarity about where to expand your business.  We also help companies use the plethora of web-based solutions designed to actively engage customers and innovators outside the organization to vet or enhance new ideas.  And lastly, we help companies implement expedient ways of sizing and categorizing market opportunities to help senior management prioritize which products or pieces of a product to bring to market first.

After attending Nordic Green II and Building Innovation Bridges between US and Europe, I became curious about just how much the US spends on basic research and where does it go. Turns out our government publishes this data and it’s really quite interesting.

From the National Science Board’s 2010 Digest on Key Science and Engineering Indicators, I found the following fascinating facts:

Basic vs. Applied Research Funding Sources

In the US, unlike most other countries, industry is responsible for the bulk of R&D investment and has been since 1980. In 2008, 67% of the estimated total was sponsored by industry followed by 26% from the federal government and the remaining 7% from educational institutions and other non-profits. The majority of the industry funds (78%) are for applied research and development while basic research gets 60% of its funding from the federal government.

Volume vs. Intensity vs. Velocity

Globally, the US in sheer dollar value, spends the most on R&D estimated at $398 billion in 2008. The rapidly growing R&D expenditures of the Asia-8 economies (China, India, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand) surpassed those of the EU-27 in 2003.


When it comes to R&D intensity – how much of a country’s economic activity (gross domestic product) it reinvests – Asia takes the lead. The Asia-8 have increased their intensity with South Korea committing 3.5% of its GDP followed closely by Japan at 3.4% of its GDP. Both the EU-27 and the US have remained steady and well below the 3% mark.

The Asia -8 economies growth rates for R&D often exceeded 10% and in China’s case, 20%, annually over the period 1996–2007. Comparable R&D growth rates for the United States and the EU-27 averaged single digits — 5%–6%. Surprisingly, only 5% of China’s R&D is in Basic Research

Why is this significant?

As noted in the Proceedings of the Sino-US Forum on Basic Science for the Next Fifteen Years, numerous economic studies have indicated that up to 50 percent of economic growth can be attributed to research and development (R&D), with basic research as the driving force. These analyses also indicate that the social rate of return on investments in basic research is twice the private rate of return, suggesting that government is more likely to invest in basic research than private industry, and also that government investments leverage substantial research investments from other sources, primarily industry. Basic research is also essential in teaching new generations of scientists and engineers about the detailed assumptions and processes of science, no matter what their ultimate career choices turn out to be. In particular, individuals who have received basic research experience at the PhD level constitute a key resource for translating scientific results into economic growth.

It’s interesting to note that Obama’s 2011 budget plans for a 3.5% decrease in applied research funds while it increases basic research by 4.1%…assuming the budget gets passed. The total amount has remained relatively stable despite multiple administrations, with the exception of the 2009 blip for the American Recovery and Reinvestment Act. This is not the way the US will remain competitive in the global economy.

When asked to define Cleantech I usually count off using my fingers to make sure I’ve listed the myriad of industries captured under this umbrella term. Each industry is redefining business as usual to reduce its impact to the environment. Despite sharing a common moniker these industries mostly work in isolation from each other – much to our disadvantage. At Nordic Green II there was broad representation from each of cleantech’s subcategories as companies, commissions and experts updated us on the progress being made by Scandinavian countries. The need for synergy among these industries was identified and well illustrated by Sweden’s Energy Agency in a fun simulation game called SymBioCity. As a mayor for the day you gain an appreciation of how challenging it can be to integrate these industries, and what trade-offs you need to make to increase energy efficiency and optimize utilization of other natural resources all while reducing the carbon footprint of this make-believe city.

While the event kicked off with this holistic view, the numerous presenters seemed to be developing very exciting cleantech innovations in isolation from broader resource or climate affecting issues. Unfortunately I cannot point to any good examples of synergies among cleantech industries outside of Sweden. Can you?

The nearly 40 year lead that the Nordic countries have on the US in clean technology is a direct outcome of a socially responsible decision by national governments which drove investment in basic research. At Nordic Green II, it was striking how advanced the Nordic countries are when it comes to clean technology innovation. The results are compelling. While the US is hard at work to make up the difference, and we bring many resources to bear on the issues at hand, it will be a costly exercise to match the Nordic success.

What is the cost of playing catch up?
• Korea: “Green New Deal” ? $46 billion over 5 years
• Japan: invests $63 billion over 5 years
• US: plans to invest $172 billion over 5 years
• China: invests $440 billion over 10 years

Fortunately for the US, industry is playing a critical role in funding cleantech ventures: the US represented 21% of 2009 VC investments as compared to China at 14% and India at 6%.

What are other risks we should be taking now? In cleantech? In healthcare? Or In education? Where are the next disruptive ideas for socially responsible innovations?

That’s an interesting question in a Web 2.0 world, and it was recently posted as an inquiry on LinkedIn. The question becomes should your core competency be innovation, commercialization of innovation, or both?

Historically innovation has been presumed to be a core competency while commercialization has been much easier to outsource. When you think about the most successful companies, were they successful because they invented a novel solution or because they executed well on an idea whose time had come, or both? The challenge is having the vision and market savvy to identify the idea whose time has come ahead of the curve but not ahead of customer readiness to adopt.

Some large and notable companies are slashing their R&D budgets in favor of Open Innovation platforms such as those below sourcing “big” ideas from outside of the company.

• NineSigma
  leverages a singularly focused approach of posting well-defined tech briefs (needs) to it global network of solvers.
• Yet2 is a global marketplace that lists both “technology needs” and “technologies available”. Yet2′s software engine drives many of the corporate open innovation marketplaces (DuPont, P&G, etc.).
• TekScout
  connects companies (TekScouts) and scientists (TekExperts). The company cites its relationships with over 2000 academic institutions around the world in addition to the TekExperts who join the site directly.
• Innocentive offers a rewards-based approach to open innovation. Problem solvers post technical challenges to network of 140,000 technical solvers. Winning solutions are rewarded via cash awards. Although usually small, the potential reward is up to $1,000,000.

The rise in user communities and social media has enabled many companies to outsource piece parts of the NPD process.

• You can test theories about what will become a trend or track others’ trend projections with edopter.
• Monitor Google Trends and Google Insight for Search for search queries that suggest trends.
• Trendspotting service Trendwatching.com tracks consumer trends.
• SpringWise.com’s network of spotters scan the globe for new business ideas that you can mine.
• Fellowforce’s WebForce 2.1 provides an online suggestion box and customer challenge platform to facilitate co-creation with customers.
• Kluster facilitates internal brainstorming with its group decision making platform. Kluster has an interesting approach to prioritizing ideas as part of its solution.
• redesignme lets customers redesign the look and feel of your products — part customer QA and part customer co-creation.

See Not Invented Here is a Good Thing for more ideas.

While there are many good tools and resources that allow many parts or phases of the product development process to be outsourced, at the end of the day someone needs to translate the input into new business opportunities. It is an art as well as science to discern what new ideas are big marketable ideas. Hopefully you’ll be leveraging these tools soon to advance your business priorities.

…rather quietly.  It’s hard to believe that 10 years have gone by.  It’s the longest job I’ve had and most of the time the best boss I’ve had.  We’ve ridden the dot com boom and bust, the rolling waves of recessions adjusting our services to meet client needs along the way.  Our tag line evolved from Marketing Strategies that Deliver Results to Creating Value Across the Product Lifecycle to our latest incarnation of Turning Innovative Ideas into Global Success.

We’ve watched the epicenter of innovation — Silicon Valley — lose a bit of luster as emerging markets developed their own innovation centers.  We’re enjoying riding that wave with relationships to organizations like FinPro, AmBAR, Innovation Center Denmark with the goal of having similar relationships to Chinese and Indian trade organizations.

When we started, cleantech had been languishing for roughly 20 years…it was not the hot technology sector it is today targeted to lead the US into financial recovery.  Now it’s a significant part of our business and we’ve done our pro bono part mentoring entrepreneurs competing in the California Cleantech Open.

What has been constant over the 10 years is our passion for helping entrepreneurs and companies find the best way to bring the best products to market for the benefit of customers and now more than ever, the planet.  We look forward to continuing that commitment here in Silicon Valley and the many new innovation centers around the globe.

There has been talk of being in a recession most of 2008. With the credit crises and stock market swan dive, the debate should have been over. Yesterday’s news made it official – two quarters in a row of declining growth.

Earlier this year, Business Week published an article on the 10 Worst Innovation Mistakes In A Recession. #4 was to stop New Product Development under the assumption that it would save money. In fact, it doesn’t save money, it simply reduces the chances for new revenue streams downstream.

Research conducted by Robert Cooper, President of the Product Development Institute, in 2004 found that new product sales fell from 32.6 percent of total company sales in the mid-1990s to 28 percent. More importantly, the same study showed that profits derived from new products were down from 33.2 percent of business profits to 28.3 percent over the same period. Why? What did companies do differently? Quite simply, companies stopped taking risks — new to world product innovations fell nearly 50% during that same time period accounting for the drop in revenues and profits.

What lessons can you learn from these past mistakes? I hope you will decide that now is not the time to slow down innovation. Your approach to innovation needs to become more productive and efficient. It’s not simply about being more creative but about being brilliant in your execution. How do you mobilize people and keep them focused? How do you explore technical feasibility? How do you identify what will drive adoption? How do you determine who best to partner or align yourself with to realize your vision? And most of all, how do you manage risk?

I wish you great success in these interesting times for new opportunities.

Regards,
Patrina