Apple's 1st Quarter Results Prove Innovation Has Nothing to Do With R&D

Apple's 1st Quarter Results Prove Innovation Has Nothing to Do With R&D

Apple sold 78.3 million iPhones in the last quarter, more than ever before. However, the trend continues to show a decline in innovation. Here is the real story.

Yes, there is no doubt that Apple just had its best quarter ever. After three consecutive quarters of decline in sales, Apple sold more iPhones (78.3 million compared to 74.8 million a year ago) and more Macs (5.4 million compared to 5.3 million a year ago), although less iPads (13.1 million compared to 16.1 million a year ago). It resulted in record quarterly revenue of $78.4 million compared to $75.9 million a year ago, and $46.9 million in the previous quarter).

The Best (And Easy) Thing You Can Do to Increase Employee Engagement

The Best (And Easy) Thing You Can Do to Increase Employee Engagement

It's easy to blame employees for lack of engagement, but without a clear, simple, and engaging mission statement and strategy--they won't.

7 Ground Rules That Will Make Your Team Meetings Creative

7 Ground Rules That Will Make Your Team Meetings Creative

In a previous article I described the building blocks for creative teamwork. However, it all comes down to what happens during the team meeting. The diversity of the team, the trust they built, the respect they all have towards each other will turn into a creative and productive meeting if the following 7 rules were followed.

7 Steps to Find Your Ideal Job and Be The Perfect Candidate For It

7 Steps to Find Your Ideal Job and Be The Perfect Candidate For It

Read the subtitle. Do you know the answer? The answer is simple: all of those you should do when you can. Not when you have to

I can't tell you how many times I was approached by a friend who had just lost his or her job due to a restructuring in their company, panicking, asking me to help them "network" and introduce them to as many people as possible so they can find a new job. My first advice to you is to never wait for that moment when you have to get a job. Look for your next job when you already have one. I know, it's hard to think about your next job right now, but believe me--you don't want to wait. 

7 Building Blocks of Effective and Creative Teamwork

7 Building Blocks of Effective and Creative Teamwork

In his bestselling book The 5 Dysfunctions of a Team, author Patrick Lencioni connected productive teamwork to trust. In his bestselling book The Speed of Trust, author Stephen Covey linked trust to credibility. In my own (not yet bestselling...) book Un-Kill Creativity, I linked team creativity to trust and respect. In reality, the model has multiple layers that build on each other. Here are those elements and layers that lead to effective and creative teamwork.

Why Do You Get Your Most Creative Ideas in The Shower?

Why Do You Get Your Most Creative Ideas in The Shower?

The following will give you a repeatable process that will make you more creative. It doesn't matter whether you think you were born creative or not. This works for everyone.

The Most Important Skunk Works Rules For Your Success

Lockheed's Skunk Works division is responsible for some of the most radical breakthroughs in aviation. Its success can be attributed to a very small set of ground rules religiously followed. Here are the most important three.

Thanks to Lockheed Martin, the word "Skunk Works" has become part of our language, and not only in aviation. It represents a secretive group within a company, often with "special rules."

At one of my previous companies, I set up a locked lab that only the engineers working on the project (and I) could access. They were not allowed to discuss the project with other employees. One day, one of the other employees stuck a label on the door with only one word: "Skunk Works." Everyone knew exactly what it meant.

Recently I read the autobiography of the man who started Skunk Works, Clarence "Kelly" Johnson, Kelly: More Than My Share of It All. Then I visited Lockheed Martin's Skunk Works website, and found out what made Skunk Works so wildly successful, and better yet--what you can learn from it and implement yourself to be as successful. The most amazing part was that those rules were created in the 1960s.

Johnson's rationale for Skunk Works was simple: "people challenged to perform at their best will do so." All of his 14 rules boil down to one simple principle: "The Skunk Works is a concentration of a few good people solving problems far in advance--and at a fraction of the cost--of other groups in the aircraft industry by applying the simplest, most straightforward methods possible to develop and produce new projects. All it is really is the application of common sense to some pretty tough problems."

While many of the 14 rules apply very specifically to the defense industry and the special relationship between defense contractors and military buyers, here is an adapted sub-set of those rules that apply to every industry, that you should use in your own company to be wildly successful:

1. The team leader must be an effective buffer.

The team leader must be delegated full control over the program, and report only to the highest possible authority. He or she must "protect" the team from the organization's bureaucracy. There should be the minimum possible number of reports that the team should be required to generate, although important lessons should be well documented.

2. The team must be collocated in a small project office.

Co-location assures strong and productive team dynamics. Team members feel more comfortable with each other, and can argue better rather than prioritizing political correctness over creativity, productivity, and results.

3. Ruthlessly minimize the team size.

The smaller the team, the more productive it is. How can a single person contribute much when there are 1,200 people in the team? You can rely on people outside the core team, but make your core team small.

4. Prototype quickly.

Show the customer your prototypes, get feedback, make changes (if needed), and keep going. Sometimes we don't want to show a prototype that is "quick and dirty," and wouldn't let go until it is perfect. However, creating too few prototypes or taking too long in demonstrating them to customers may delay the project rather than expedite it.

5. The team must be trusted by company management and the customer.

Without this trust, there will be continuous counter-productive outside intervention in the project. The team (and its leader) must earn this trust. You cannot mandate it.

6. Restrict access to outsiders.

While in Lockheed's case the reason was the national security nature of the projects, in your company this will assure less interference and "design-by-committee" delays.

7. Involve people in the big picture.

Involving everyone in the big picture, including finances, quality, manufacturing, and usage of your product, service, process, or business model will allow individual team members to be the most creative. In Skunk Works, that also meant that every single team member got to stand on the flight line to see the prototype take first flight.

Perhaps the most telling part of success of the Skunk Works program (other than the ground-breaking military and civilian aircraft it produced) is something I found in a report created by the Rand Corporation for the US Air Force and Advanced Research Projects Agency in 1971. In that report, they analyzed project management of the Agena-D satellite development program and compared the planned versus actual results. The project was estimated to cost $60 million, but was completed in $32 million. It was going to take 18 months, but was finished in 9. 69 Quality control people were used, instead of the projected 1,200. While 3,900 drawings were expected, only 350 were needed, and instead of taking 30 days to release each of them, they were released in one day.

Wouldn't you want to achieve such results in your company today?

To close, here are Johnson's carefully-chosen words of frustration with how projects are typically handled in industry: "There is a tendency today, which I hate to see, toward design by committee--reviews and recommendations, conferences and consultations, by those not directly doing the job. Nothing very stupid will result, but nothing brilliant either."

This article was originally published by Inc. Magazine.

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Do More Creative People go to Startups?

While working on my next book, Un-kill Creativity, I reviewed all the work done towards my doctoral dissertation, From Startup to Maturity and found the diagram shown above. This diagram was the basis for explaining to my dissertation committee what I was about to research. The diagram never made it into the final dissertation. Maybe it should have. However, I recently used it as a starting point for many discussions, the result of which was that I slightly changed my mind on the reasons that startup companies are more innovative than established ones. Not by much, but still enough to share it here.

Innovation (be it product, service, process, or business model) is an organizational function. I refer to it as “product” for simplification, and because it is the product of everything that precedes it. Innovation comes from people. Specifically–from creative ideas that people conceive. Those ideas get implemented, and the result is the innovative product. However, the diagram shows a more complete illustration of all the elements of innovation, and contrasts the startup company (bottom) against the mature company (top).

We start with a “pool” of (more or less) creative employees. Companies then use hiring as a tool to get creative people in. Companies then create the climate that will allow the now-hired employees to be more (or less) creative than they were before being hired. This climate can help employees reach, and even raise their creative potential, but it can also prevent employees from reaching that potential. The results are creative ideas, to which the company applies an implementation mechanism that will result in innovation output.

When I began my research, I created three hypotheses:

Startups have no advantage over established companies in implementing a creative idea;

People with similar levels of creativity are hired by both types of companies; and therefore–

Startups provide a climate more conducive to creativity than established, mature companies.

If the above was true, it will support my claim that there is a stronger creative idea flow in startup companies, which will explain higher innovation levels. This is why the focus of my study (as illustrated in the diagram) was on the relationship between the organizational climate and the employee, affecting the flow of creative ideas. The findings of my research supported this third hypothesis.

However, in this article, I would like to challenge the other two.

Do more creative people go to startups?

I used to fight the idea that more creative people go to startups. It is an uncomfortable thought. There are four elements affecting individual creativity (see Creativity, the Fourth Element). I didn’t see any reason why people would choose startup over mature companies (or vice versa) based on their own level of creativity, but this is not entirely true. Creative people are willing to try new things and fail. They are not afraid of failure. They learn from it. Furthermore, creative people are not afraid of arguing, and are not worried that passionately debating an issue would induce personal conflict, and are willing to take that risk (see Why are we so afraid to argue and how does it affect our creativity? Finally, creative people know how to circumvent the implementation mechanism and beg, borrow, and steal resources to get their ideas implemented. Creative people would rather beg forgiveness than ask permission. Creative people are more willing to take risk.

Going to work for a startup company is risky, albeit the potential reward is higher. Most startup companies fail. Even today, the perception that established, Fortune 500 companies present “safer” employments and better job security still exists. Employees who are willing to take risk are more likely to accept the insecure startup employment over the allegedly safer established company employment.

It seems that the willingness to take risk affects both employee creativity and the preference to work at startups. The correlation between individual creativity and employment at startups exists, although there is no cause-and-effect relationship, but rather both are related similarly to the same root cause: risk tolerance.

why I invested in OIL in 2015...

Last weekend I visited a friend's property in East Texas. He has a few oil pumps and the mineral rights for what appears to be a pretty sizeable oil field underneath. However, the pumps were idle. He said that oil prices are so low right now, that the oil companies are not pumping. 

This brings the question-what part does crude oil play at the price of gas we pay when we fill our car gas tank?

(Source: www.gaspricesexplained.com)

From the chart above you can see that crude oil represents only 40% of the price at the pump, while the other 60% include refining (25%), taxes (17%), and transport and retail (18%). While crude oil prices change, the cost of refining it, transporting it, and selling it, for the most part, will not change. Assuming taxes are calculated based on the retail price, then a 1% drop in the price of crude oil will have an impact of 0.4% on consumer price, and an additional 0.068% through taxes (17% of 40%). Total of 0.468%. 

So how much does it cost to produce one oil barrel? It costs $52.50 in the UK, but only $10 in Saudi Arabia and Kuwait. This is why they can continue to make a profit while we don't. In the US, it costs approximately $36 to produce a barrel of oil. This is why the US is not pumping as much anymore. 

There are many theories as to why OPEC countries and Russia decided to pump more and reduce the price. However, there is another interesting dynamic here. The dynamic of supply and demand. Most of the oil pumped will be used to fuel vehicles (cars, planes, ships), which means it has to be refined and delivered. Does a reduction in oil price affect the demand? It does, but very little. 

Let's go to the first lesson in economics: supply and demand. From the chart to the right, you can see that if the price goes down, the quantity will go up (See the red line). Depending on the slope of the line, if the price went down 10%, the demand quantity would go up 10%, so the total budget spent will be the same. Why? because more people will buy if the price was lower (people who never bought before), or people will buy more because they can afford more (people who did buy before). However, think about the dynamics of the fuel market. Will I drive more because prices are lower? Where would I go? Would I change jobs just so that I can drive more to work because I can afford to??? I may take one (or more) extra road trips, but that's pretty much it. Will people who never bought a car buy their first one now? Will I buy a bigger car only because fuel prices are lower? The answer is that the impact of gas prices on the demand is little, which is why the demand curve for oil is much steeper. 

If you look at the chart to the left, you can see the small impact of huge changes in oil prices (blue) between 1970 to 2012 (in the range of under $20/barrel to over $100/barrel) on consumption (red) that barely changed from 60 million barrels/day to under 90 million barrels/day.  While oil prices changed 5-fold, demand increased by 50%. 

So if OPEC countries "flood" the market (figuratively...) with oil to the point they reduce the price per barrel to the $10 it costs them to produce it (without any profit), from the $34/barrel today, they will reduce oil prices by 70%, but the impact on retail "fuel at the pump" will only be 33% (remember, the impact of oil and taxes on total price-per-gallon is 0.468). How much will 33% price reduction impact demand? Even if the demand will grow by 10%, the oil producing countries will suffer a 70% drop in price, as well as 10% increase in quantity, still a total of 67% drop in revenue. But if they did lower the price of oil barrel to their production cost of $10/barrel--they will lose 100% of their profits. 

In fact, last week Saudi Arabia disclosed that 2015 will end with a $98 billion deficit, and 2016 is expected to end with a not-much-better $87 billion deficit, because oil is their main revenue source. You see, they planned their 2015 budget when they were selling oil for $74/barrel, and while expenses "came through", the revenue didn't. If it cost them $10 to produce, the drop from $74 to $34 represents 54% drop in revenue, but 68% decline in profit, and there was no significant increase in demand to compensate for it. Saudi Arabia also announced "radical austerity" measures to cut their budget. How long can they hold their breath?

Every now and then a friend asks me whether they should invest in one stock over another. "This stock is so low right now--it just can't get any lower. It must go up!" History shows us that the only price that stocks will never go under is $0. This is where you lost all the money you invested. It happened before... However, oil is a non-replenishable resource (remember that from elementary school science class?...) Demand for oil, let's face it, is not going away. As we can see from the above analysis, not only that the oil price reduction will not yield an increase in demand--it is also unsustainable for the countries that produce it. Unlike stock--the price of oil will never reach zero. 

Now, this is NOT investment advice. I am NOT an investment advisor, certified or not-certified. I'm also NOT suggesting you do anything, but I'm telling you what I did. When oil got as low as it is today--I bought oil commodities. Can it continue to go down? Maybe. Will it go back up? You bet! Will it reach $50 in the next 10 years, before I retire? Will it reach $70? $100? You do the math. 

 

Sources:
http://www.gaspricesexplained.com/#/?section=strategic-petroleum-reserve

http://money.cnn.com/2015/11/24/news/oil-prices-production-costs/

https://www.washingtonpost.com/news/worldviews/wp/2015/12/31/saudi-arabias-economy-minister-denies-the-new-budget-is-radical-austerity/

http://www.resilience.org/stories/2015-02-05/charts-showing-the-long-term-gdp-energy-tie#

The future of the mom and pop shop (revised again...)

The local mom and pop shop, the small business entrepreneurs, are the foundation of American entrepreneurship and enterprise.  However, they have been under severe attacks in two main fronts: the major chains, and the Internet.  Most of the local grocery stores have all but disappeared when a Walmart, Target, Tom Thumb, Safeway, and the others appeared in their area.  With greater selection and lower prices (that only a major chain with overwhelming bargaining power over suppliers can offer), the local grocery store could not compete anymore.  I used to buy a lot from the local hobby shop, but I realized that no local store could hold the variety of parts that could only be found through the major distributors and ordered online.  The Internet (including eBay, Amazon, and other venues) arrived as a blessing and a curse.  Retailers follow the MSRP guidelines by manufacturers, but when a local store offers a product—it has to charge sales tax, whereas when an “Internet store” offers the same merchandise—it does not typically charge sales tax, which could be significant.  They have to ship the goods, but due to advantages in location, lack of warehouses, economies of scale, and no need for retail staff or prime real estate location—they can even absorb shipping prices (and thus offer “free shipping”) and be more profitable than the local retail store.  When I buy a $100 product at the local hobby store, I have to pay $108.25 (including sales tax), but when I buy it online, I can find quite a few eBay stores that offer the same for the $100 MSRP, with free shipping, and no sales tax.  Yes, I have to wait, but isn’t it worth saving the $8.25?  There is no doubt that the Internet (with eBay, Amazon, PayPal and more) is a blessing for the buyers, but is also a curse for the local mom and pop shop.

So what is the future of the mom and pop shop?  The answer hit me when I was building my 16 pound F/A-18C radio controller jet.  I needed a landing gear.  None of the local stores were even familiar with the plane, let alone had the right landing gear in stock.  They didn’t even know where I could find one.  None of the major hobby distributors or manufacturers had somethings that was specialized enough.  They only had the "generic" landing gears that would appeal to as big a market as possible.  After conducting some Internet research, and participating in some of the specialized Internet forums, I found a manufacturer of such a landing gear.  This was a small store (mom and pop?) in Ohio, and as it turned out—the only one in the world who builds such a landing gear.  I ordered it, and had to pay whatever the owner asked, because there was no alternative (since there is a small chance that my wife reads this blog—I will not disclose the price…). 

But it didn’t hit me until now—the future of the American small business, the foundation of our economy, the embodiment of the entrepreneurial spirit, is not the local shop.  It is the highly specialized shop.  This is where the blessing of the Internet plays a role.  With eBay, PayPal, and Amazon you can ship anywhere (in the world!) with little to no hassle.  Marketing is simple, if you know where to go.  I would never have heard of Ed Dobias (who owns and operates RC Crafters in Ohio) if his name was not mentioned in the forum discussing that F/A-18C.  But I did, and I reached him, and he had exactly what I needed, when nobody else did.

Whenever I teach entrepreneurship, marketing, and strategy, I recommend (strongly urge) that you be a big fish in a small pond rather than a small fish in a large pond.  You cannot compete with Walmart.  Don’t try to compete locally.  But you can create something that a very small niche (albeit global) needs, and you might be the only person in the world building it.  You do have access to all of your customers (worldwide), if you only know where to look.

Let me try a numerical example.  Hypothetically, the market for radio controlled (RC) airplanes might be $100m annually worldwide (it is actually significantly larger).  The local market where a single store is located could be $1m, which might not be large enough to even support one store.  Customers will likely be making their purchases online anyway to save the tax, so that store might not even generate $1m.  However, the market for a single (yet necessary) part of that hobby (say, the F/A-18C landing gear) might only be $100K annually.  Add to that a few other landing gears, make them well, and you have a global market worth $1m or more, that you will “own”, and build the best product for it.  This market is easy to reach (if you go to the right Internet forums), and the products could be easily shipped (using eBay and PayPal).  The large players in this market will ignore this niche, which is too small for them to even consider, but you can serve it proudly and profitably. 

The new mom and pop shop is not local.  It is highly specialized and global.

I published this original blog post in 2011. In that original article the following note was included: "Note: this article mainly discussesproducts, and not services.  Many services, which require you to attend personally (such as the local barber shop) will always remain local and continue to compete locally successfully.  Other services, though, that do not require your presence to provide the service (such as tax preparation, for example), could be offered remotely."

Since I launched "Large Scale Creativity," I became fascinated with the emergence of Internet marketplaces, such as envato, fiverr, udemy, and others. Where your talent is not required "on site", you can offer your special services through a marketplace. On one hand there are people like you, who know how to create something very well, and have the tools to create it. On the other hand, there are people who need what you have. Maybe they need it once, and maybe twice. However, they can't find you, and you can't find them. Until the advent of the marketplace. 

I wanted a nice logo for my website. fiverr is full of logo designers offering such services. I consider myself quite creative, even on the artistic side, but not as good as the designers who offered me 8 options for my logo. Then I wanted a nice intro video for all my videos. It would probably cost me between hundreds to thousands of dollars to get the tools needed, weeks to get to learn how to use those tools, and months to get reasonably good at them. And I would still not have the talent. However, it cost me $5 to get the intro designed, $5 to get the colors of the template to match my logo design, and another $5 to get it in HD. I got it within 3 hours of placing the order. And the designer? He is working from home. Already has the tools and computing power, the experience and the skill he can prove. He got the order. I'm sure it didn't take him more than 3 minutes to create my intro. And he got $15 for it. His rate therefore could be up to $180/hour, or more than $350,000 a year. If he did that full time. 

Oh, and I'm using udemy to deliver my content as online courses... 

Trust, Motivation, Creativity, Innovation, Results (the real story)

Published at Innovation Excellence, December 16, 2015. http://www.innovationexcellence.com/blog/2015/12/16/trust-motivation-creativity-innovation-results/

I can’t believe I’m about to do this. Don’t tell anyone, but today I’m going to defend management. Yes, the management that, according to Clayton Christensen, is not supporting the creation of radical ideas that will change markets. The same management that, according to Teresa Amabile, is not providing a climate required for employees to be creative. That management. And I’m about to defend it…

About 10 years ago, while working for Texas Instruments, I took a business trip to Israel. There, one of the brilliant young engineers came to me and asked to speak with me in private. “I presented many great ideas to management,” he said, “but they keep shooting them down.” He was frustrated, and I can understand why in such a climate one would not want to bring up new ideas anymore.

As Teresa Amabile stated (and my doctoral research supported), for employees to be creative, management has to provide a conducive climate. One of the most important factors is the autonomy that the company provides to its employees. The willingness to try new things and fail without adverse consequences is part of it.

However, why will management give you that autonomy? The only circumstances in which you should get this autonomy is if management trusts you. How much autonomy would you give your child to try things, especially risky things? Depending on how much you trust them. It is easy to blame management for not trusting you enough to give you the autonomy you need, but why should they?

Let’s assume, though, that they do. If management trusts you, they will give you the autonomy you need. They will share with you the “big picture” and allow you to try things, fail, learn from them, and then try again.

TrustMotivationCreativityInnovationResults.png

In this environment, you will get the intrinsic motivation you need to be creative. You will increase the fluency, elaboration, originality, and flexibility of your creativity. In other words, you will have more and better ideas.

And once you found that great idea, the trust that management has put in you will translate into the allocation of resources required to turn your ideas into new, innovative products, services, processes, or business models. And as prior research showed, innovative companies gain 3 times the market share, 6 times the revenue, and 3 times the profitability of the average company. Your company’s financial performance will significantly improve.

And what do you think this will cause? An increase in the trust that management has in you. And that increase in trust will cause them to give you more autonomy, and allocate more resources to implement the best of your ideas.

But what if you do not provide creative ideas that result in innovation? You will have little to no impact on improving the company’s financial performance, so why do you expect management to trust you with more autonomy and implementation resources?

It’s a vicious cycle, but there is a way to break it. I asked that engineer in Israel “what did you do when management shot your ideas down?” “Nothing…” he said, looking at me puzzled, “what could I do?” Sometimes you need to beg, borrow, and steal resources to get your ideas out to the market, despite lack of management support. You refuse to take “no” for an answer. You don’t stop with a great idea–you provide a bullet-proof (or as close to is as possible) business plan that shows how this will increase the company’s financial performance. And then, again, you beg, borrow, and steal resources. It’s a risk, but it pays off. If you are successful–this cycle will make it easier the next time around. If you are not–well, there are always other companies…

image credit: wsimag.com

- See more at: http://www.innovationexcellence.com/blog/2015/12/16/trust-motivation-creativity-innovation-results/#sthash.cvBkvWlN.dpuf

The Minority Report: The future of security

(I posted this right after the Boston Marathon bombing.)

Following the events in Newtown, CT and at the Boston Marathon, the question of security, and especially how to prevent events like those from occurring reached the headlines, again.  Last Friday I was interviewed on the AVWEEK radio show, and one of the topics of discussion was an article claiming that the surveillance camera which provided the footage that helped catch the bombers (although, after the fact) was almost taken offline for service, which could have prevented the capture of those suspects. 

There are more and more cameras installed with live feeds available throughout the world.  Companies such as USTREAM (and now, apps such as Periscope) exist to give us access to that live feed.  The positive aspect of it is that we may get access to footage that will allow us to capture terrorists.  However, the negative aspect is that the amount of video stream provided by this increasing number of cameras cannot be monitored by security personnel in a way that will allow preventing terror events before they happen.  Or can it?

There is, and will always be a debate of whether surveillance cameras infringe on our constitutional right for privacy.  There will always be the debate of whether a surveillance camera in a public location does constitute such infringement, but this is not the topic of this article.  I will talk about the technological future of such surveillance.

One area of technological development is the field of smart cameras.  These are cameras that do not only provide a video feed for people to watch, but can actually analyze what they see using a technical discipline called computer vision, and provide some insight to what’s in that video stream.  Although sounds futuristic, we see some elements of this now.  When a regular pocket camera shows a square around someone’s head so you can focus the picture around that head, or when facebook shows you squares around people’s heads in an image to allow you to tag them, that’s computer vision. 

Many universities and research institutes work on different projects that make cameras “smarter”, allowing computers to analyze images and video streams and determine what’s in them.  Companies such as Image Vision Labs, located in our own Collin County, Texas, claim that computers can analyze 144 times more images than humans at the same given time.

In 2010, I attended the largest gathering of computer vision researchers, the IEEE CVPR (Computer Vision and Pattern Recognition) conference in San Francisco to see some of those projects.  One example was the ability to extract speed limit signs from a video stream coming from a dashboard camera to alert the driver to the allowed speed limit.  While the implications of the research presented were fascinating and far-reaching, almost every time I learned that it took almost a week for the computer program to analyze a 30-second video, and thus the analysis was not done in real time.  After all, learning that the speed limit was 40 MPH a week after the fact might be a bit irrelevant…   However, considering the fact that processing power doubles every two years (see a previous blog entry, "The Robots will take over by 2028"), without considering any improvement in the efficiency of those detection algorithms, and using 2010 as a base year, then by 2038 those algorithms will run in real time, and my car computer will tell me that it “sees” a speed limit sign as soon as I pass it.  This also means that by 2040 the same computer will be able to analyze the video stream from two cameras in real time, and by 2098 it will be able to analyze the video stream coming from all 1 billion cars that exist in the world (although, of course, by 2098 there will likely be more cars…). 

Furthermore, let’s assume that the image required to identify a person takes 1MB of storage.  Today I found on eBay a 2TB disk drive for $100.  Such a drive can hold the images of 2 million people.  The capacity cost of disk drive (as measured in GB/$) grows 60% every year (as I reported in my book, Bowling with a Crystal Ball).  This means that in 2027 we could buy a disk drive that could hold the images of all 7 billion people on earth for $100. 

Those dates seem very far in the future, but they really aren’t.  We will be able to buy that disk drive in our lifetime, and while a single computer that can analyze the video stream from all cars in the world will only occur in our grandchildren’s lifetime, the ability of a single computer to analyze the video feed from one camera in real time will occur ours.

One final reference before I reach the conclusion.  In 2006, Gene Frantz, then Texas Instruments’ most senior technical person and a friend of mine visited an Israeli company called CNOGA ( see article) that at the time showed the ability of a computer to analyze the video from a camera watching a person and provide vital signs, such as blood pressure, heart pulse rate, and even sugar level.  That company now sells a non-invasive, camera-based device that allows monitoring of those vital signs, especially useful for diabetic people who will not have to draw blood several times a day just to monitor their sugar level.

What does it all mean?

Smart surveillance cameras are already installed throughout the world.  Although they currently have limited functionality, and are installed in limited (although growing) numbers, this functionality will increase as both processing power and storage capacity increase.  The Boston surveillance cameras may have been instrumental when the video feed from them was watched carefully after-the-fact by personnel to catch the terrorists, but tomorrow’s networks of cameras and computers will be able to realize that someone has left a bag somewhere and fled the scene and alert security forces to prevent the act of terrorism before it occurs.  Cameras, networks, and computers like that could possibly identify that the Newtown murderer was up to no good as soon as he left his home (vital signs could have given his intentions away?  What he was wearing could have indicated the presence of the AR-15 that he carried?) long before he reached the school and alert the police.

Many times we have seen how reality follows sci-fi movies.  In our lifetime, I expect to see “The Minority Report” becomes the future of security. 

Separate Innovation from Entrepreneurship!

Published at Innovation Excellence, November 15, 2015. http://www.innovationexcellence.com/blog/2015/11/15/separate-innovation-from-entrepreneurship/ 

Startups disrupt markets

In The Innovator’s Dilemma, Clayton Christensen claimed that only startup companies can disrupt new markets and produce radical innovation. Sure enough, 57% of the participants in my 2008-2010 creativity in organizations study (see http://www.innovationexcellence.com/blog/latest-articles/2015/09/29/from-startup-to-maturity-how-to-un-kill-creativity/?Itemid=88) experienced higher degrees of creativity in startup companies, and only 10% felt more creative in established, mature companies. Startup companies don’t really have a choice but to be radically innovative, as they typically don’t stand a chance of survival (or even initial investment) unless they do something substantially different and very innovative.

Innovation = Entrepreneurship?

As a result, the words innovation and entrepreneurship became synonymous in our language, and the place we see this the most is in universities and business schools. The University of Texas at Dallas has an Institute for Innovation and Entrepreneurship. Stanford University’s center for professional development has an innovation and entrepreneurship certificate program. The Harvard University Innovation Lab (i-Lab) deals mainly with–entrepreneurship. Many universities have a business accelerator associated with their innovation program, aimed at launching new businesses. The model is simple–we teach you how to innovate, we conduct a business plan competition, we may help you raise initial funding, and as a result–you launch your startup.

Established companies kill creativity

But why are we linking these two words? Why is being an innovator means I have to launch a startup company? Can’t I be an innovator in a mature company? There is a very simple reason for that, and both Harvard Professors Clayton Christensen and Teresa Amabile pointed it out. Christensen defined the innovator’s dilemma as the fact that “the logical, competent decisions of [established company’s] management that are critical to the success of their companies are also the reasons why they lose their positions of leadership,” and Amabile wrote that “…creativity gets killed [in established companies] much more often than it gets supported… …creativity is undermined unintentionally every day in work environments that were established–for entirely good reasons–to maximize business imperatives such as coordination, productivity, and control.”

Creative destruction

It is clear–we link innovation with entrepreneurship because established, mature companies “kill” creativity, and lose their markets in favor of startup companies that have no “baggage” and no respect to the “rules of the game” by which companies, established in their markets, play. This should not be a surprise, as the Austrian-American economist Joseph Schumpeter described Creative Destruction in 1934, which “…strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.”

Exit Strategy

When startup companies raise funds, even at the very early stages, they define their exit strategy. Their potential investors insist on it. Investopedia defined exit strategy as “The method by which a venture capitalist or business owner intends to get out of an investment that he or she has made in the past. In other words, the exit strategy is a way of ‘cashing out’ an investment. Examples include an initial public offering (IPO) or being bought out by a larger player in the industry. Also referred to as a ‘harvest strategy’ or ‘liquidity event’.”

With increased stock market regulations, an IPO became almost impossible to achieve for a startup. Very few startups consider it anymore. With a shortened investor “attention span,” it seems as if the only viable exit strategy is now an acquisition by a larger player, and those continue to happen. In 1997, the Israeli technology company Mirabilis (creator of the first instant messenger, ICQ) was acquired for $407 million by America Online. Google bought Waze (another Israeli startup) for $1.1 billion in 2013, and Facebook acquired WhatsApp for $21.8 billion in 2014. The surprising common thing for all those acquisitions? None of them generated any revenue whatsoever, and showed no clear path to profitability. No doubt–the acquisition path remains a very viable exit strategy to startups with innovative, game-changing ideas.

Does the startup’s exit strategy work for the acquirer, too?

No doubt that if you spend the last five years building a startup, received $60 million investment, and made more than $20 billion when selling the company–this exit strategy worked well for you and your investors. But was the acquisition as attractive to the acquiring company as it is to the acquired startup? Will it really give them the innovative edge they may have lost? Christensen wrote in a 2011 Harvard Business Review article that “companies spend more than $2 trillion on acquisitions every year. Yet study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.” Not so great for the acquiring established companies. In 2009, Cisco acquired Pure Digital, the company that made the Flip camera, for $590 million, and two years later shut it down as a failed acquisition. There are too many examples like that. But even if the acquisition was successful, at best the acquiring company gains one more innovative product, rather than turn into a consistently innovative company.

Creativity in established companies

There is an opportunity here. While established companies celebrate innovation without really innovating, this can change. The innovation spark can be ignited again. Mature companies can innovate. Although 57% of the participants in my own study felt more creative in startup companies–10% felt more creative in mature companies. Startup companies start with the idea. Mature companies are really startups that had one great initial idea, but lost their ability to do that on a regular basis. Companies such as Apple and 3M show us that innovation can be a sustainable organizational characteristic. To create an “innovation engine” within an established company, attention must be given at three levels: organizational climate, team dynamics, and individual context (see http://www.innovationexcellence.com/blog/2015/08/13/who-is-responsible-for-innovation-in-my-company/). The organization must create a climate that is conducive to the creativity of the core design team. Teams must foster such dynamics that will allow members to build on each other’s ideas, and individuals must practice what will increase their flow of ideas through improving fluency, originality, flexibility, and elaboration. Those are brain functions that can be exercised like any other muscle in our body. Established companies should go through three phases: assessment of the current state at all three levels, intervention to correct what needs improvement, and finally–ideation to produce new, radically innovative ideas. After all, 3,000 ideas are required to achieve one market success.

The return on investment is guaranteed to be higher than with the 10-30% probability of success with a multi-billion dollar acquisition. Consistently innovative companies gain 3 times the market share, 6 times the revenue, and 3 times the profit compared to their less-innovative peers.

Include innovation in university executive programs!

I’m not advocating for universities to abandon teaching innovation in undergraduate and graduate programs with the intention of launching new startups.

However, they should complement this with teaching innovation to executives of established companies. Integrate innovation in executive education programs. Focus on providing executives of mature companies with tools to assess, intervene, and ideate in their companies. This could make all the difference.

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