Business is about profits

 I define business as “Creating Wealth through Profitable Transactions”.

 Like it or not, that’s what business is about!

 Indeed it’s the first duty of a CEO and board to work to the best interest of shareholders in providing a return on their investments. This is one of their fundamental responsibilities and by and large guides their decision making.

 Do you measure it?

 In many businesses precise metrics are employed to ensure workers are providing an adequate return on their costs, wages and all the attendant overheads. In fact the total cost of many workers these days is 50% or more of their direct salary.

In production we measure process efficiency, defined as output per unit time divided by costs. We then work to maximise the process efficiency, but we measure it.

In accounting, law, consulting and even contracted medical professionals, earned income compared with cost is measured. If you are not paying your way and in fact returning a profit, then unfortunately your time will be short lived. This is how it is in business and this is the way it will remain.

 There are some escapees

Strangely, senior managers, except perhaps the CEO, escape this direct measurement of performance (more will be said on this in future articles). In fact some complete departments deemed as essential also escape. accounts, payroll, and ITC may fall into this category as essential overheads whose costs must be amortised across other profit centres.

In the case of innovation initiatives and indeed complete innovation departments, the rationale behind the establishment of these is that “it’s the done thing”. If we are not being innovative we will not be able to retain our position and will soon be overtaken by smarter competitors. This is a great story and so true, but unfortunately the reality is that if the innovation initiative is not delivering quantifiable value then clearly it should simply not exist.

How does your innovation initiative measure up?

In the past many companies have embraced then later discarded their innovation initiatives once it became obvious that the costs were not being in any way justified by the outcomes.

The common defence for such departments when challenged is that “innovation takes time, but we will get the big one and all will be well.” Sure thing, how many times have we heard that one from would be innovators?

There is an old axiom in business and engineering: “If you can’t measure it, don’t do it”. This is so true.

Unlike perhaps the IT, accounts or payroll departments that are simply indispensable, an innovation department that is not delivering value does not qualify as one of these “escapee” and thus should not exist. Such departments are simply an unjustified business overhead.

The bottom line is do you have Innovation Metrics in place?

What is your planned innovation payback period and are the costs exceeding any expected returns.

Where to Start?

 The starting point, too often overlooked is embodied in the following four questions.

 What are you trying to achieve?

• Where are you now?
• How will you measure progress?
• What outcome defines success?

If you intend to either embrace or continue with an innovation initiative then answer each of these questions, ideally with a single sentence. If you cannot do that, you are not yet on the first rung of the innovation ladder.

Finally, my next article will look at the time scale for implementation, and you may be quite surprised at just how short that can be in providing a positive ROI.

 **** END ****

Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries.  www.matrixthinking.com

Stop Press:    1.       In late July Roger will again be visiting Colombia on a government sponsored trip to bring Matrix Thinking to more universities as well as speaking at several key industry events in three major cities. This is a 10 day tour and now also includes the provision of Roger’s books translated into Spanish for more easy assimilation by the Colombian student and business community.

2.         A few weeks ago Roger delivered a keynote to members of the People and Culture team at the National Australia Bank. The response was fantastic with an endorsement below coming from one of the banks very senior managers:

“Wow! Roger held an audience of NAB People & Culture team members spellbound with his insightful, action oriented approach to innovation. Applying lateral thinking, he sees opportunities everywhere and turns complexity and the threat of the unknown into exciting business opportunities. Without doubt Roger La Salle is one of the most inspirational speakers and writers of our time.”

Mr Jim Young,

Executive General Manager

National Australia Bank

People and Culture, Group Business Services

Following this Roger has now been engaged to deliver a series or workshops to this group, comprising in total some 5,000 people. This is a great endorsement for Matrix Thinking.

3.         Last year Roger delivered Matrix Thinking in India to some 140 MBA students in two streams over six days with an assessment at the conclusion. This year Roger has been engaged again but this time for 180 students in three streams of 60. This will include a formal assessment with marks being credited to the formal MBA course being delivered.

4.         Matrix Thinking is now available on the Deloitte Innovation Academy (DIA) web site. Soon and interactive matrix thinking portal will also be available. This is presently being developed by Deloitte Digital and will be a huge value add for DIA users.

5.         Finally after almost 12 months in gestation Roger’s new book, his fourth entitled “Innovate or Perish” is in printing and will be available within a week. Orders for this book that address innovation and metrics for the services sector are already in hand.

News Continues:

1.         In Europe Matrix Thinking was trialled in two companies with a formal independent assessment by a consulting group at the conclusion. The results were outstanding and matrix thinking is now being rolled out across a wide number of jurisdictions under funding from the Government. This is again a huge endorsement.

2.         Last week Roger delivered a keynote followed by a workshop for members of the Rotational Moulders Association.  This event was held in beautiful Queenstown in New Zealand. The whole conference and event was a huge success, no doubt due to the fantastic organising skills of the Association Executive.

3. Malaysian Television Evening news highlighted Rogers’s conference event in KL. This event was attended by some 350 CEO’s.

See the link:      http://www.nama.com.my/wmv/20080909_T60_BTV-0430PM_3.WMV

4.         Roger has now formed a strategic alliance with “The Market Intelligence Company” in Sydney. This company has been in business for many years and is extremely well respected in gathering market research across a wide range of industry sectors. See the link on the “Links” page of this site.

5.         Due to increased demand Roger has now commenced formally assisting companies with the commercialisation and strategy development for new products and initiatives. This has been added to this site as an offering by popular demand.

6.         Finally the “La Salle Matrix Thinking Course Notes and Workshop Session Manual” has now been revised, refined and updated yet again. The new edition includes further information on KPI’s, Management Reporting, Value Chain players, Embedding Innovation and Innovation Circles. The manual now also has extensive content on innovating service industries, a must for most western economies that are now heavily service based.

                                                **** ENDS ****

© Roger La Salle 2010

A revealing statistic!
In a recent book called “Creating Wealth” by Lester Thurow some interesting statistics are cited.

“…..In the 1920’s the life expectancy of a publicly listed company in the USA was some 65 years, by the 1990’s this figure has fallen to less than ten years. Of the companies forming the original list of the Standard and Poor’s Index, only one, General Electric still survives today, and to do so GE has had to constantly re invent themselves to remain relevant.”

Innovation versus Invention
Interestingly, some of the less initiated in this business often use the word innovator interchangeably with inventor. This is often done in a polite and misguided endeavour to differentiate the person in question from the classic stereotypical inventor, represented as some excentric weirdo with fuzzy white hair wearing a white dust coat.

In fact innovation and invention are different.

Whereas innovation may be defined as “change that adds value”, invention may be perhaps best defined as something “new, novel and without precedent”.

Notwithstanding the above, most inventions are in fact created by making improvements to existing things. Indeed there are few totally new inventions.

However, whereas novelty is an essential part of an invention, novelty is not an essential part of an innovation.

Big ‘I’ and Little ‘i’
When it comes to understanding innovation further, some texts refer to so called big ‘I’, and little ‘i’.

The former refers to big or disruptive innovations that totally change the landscape of a business, its products or the dynamics of the market. In contrast, little “i” refers more to incremental changes or improvements to businesses and products.

In theory, or more likely with the benefit of hindsight, many thinkers and writers on the subject refer to big ‘I’ as essential for businesses to survive for the longer terms. The push is for businesses to “disrupt” themselves and radically change for the better following in the footsteps of companies cited as case studies that have successfully done so.

Rear Vision is a wonderful thing!
NOKIA is one exceptional example of a company that successfully migrated its core business from timber to electronics. They did this after they saw the growing resistance to the use of the dwindling natural timber resource and the emergence of the new mobile phone business with almost unlimited market potential. This is a wonderful success story operating on the big “I” model.

General Electric is another company that has reinvented itself to become strong in the financial sector. However, in doing so GE took the safe option in that whilst creating its new enterprise it did not turn its back on its traditional engineering business, instead it used its brand strength to underpin the new endeavour.

Many texts refer to these case studies as a blueprint for the future and an endorsement of big “I” as the means to renewed riches as companies model themselves on the NOKIA style of rebirth. Unfortunately, all of these case studies are just that, studies in hindsight of a few “stars” that have successfully crossed the bridge to new horizons.

Rear vision is a wonderful thing, but if one looks at the history of disruptive pioneers you will find the path littered with the corpses of those who dared to be first with disruptions but failed, as is so often the case. The problem is that these pioneers are seldom heard from.

Consider some of the so called disruptive technologies that have either failed, or undergone a very difficult and expensive birth.

The ill fated COMET jet passenger airliner, a revolution in its day, plagued with technology problems whose ultimate solutions enabled Boeing, untarnished by the pioneering COMET failures, to win the world market for passenger jets. Concorde is another example of a technology before its time. Ultimately supersonic passenger transport will become commonplace, but not to the benefit of the Concorde pioneers.

Even the ubiquitous computer took many years to be adopted by the greater community. Indeed had it not been for the development of both word processing and spreadsheets, computers today would be little more than scientific novelties and platforms for games.

So too the computer mouse which was a complete novelty when first conceived in 1968. In fact it was some 13 years before this disruption in the way we use computers was actually commercialised.

Similarly for the internet, this was possibly one of the most disruptive technologies of the 20th century and has revolutionised the way business is conducted worldwide. But it was the application developers, not the creators, who have won the rich spoils offered by this disruption.

Failure is more the norm
There are countless examples of pioneers who failed with disruptive ventures and seldom rate a mention in the end game. Unfortunately, too often we are encouraged to follow the path of the very few successful winners who steal the limelight, as they should. But be warned, these people are few and far between.

What about little “i”
The “incrementalists” are the little “i” operators and there would be no better example than the car makers. Incrementally these people release face lifted new models with perhaps just one tiny added feature almost annually. They do this for no other purpose than to render your current model obsolete and to keep you continually upgrading to the newer one.

The cell phone and computer games companies are also wonderful exponents at this art, and what abut Microsoft? None of us can even use all the features of Windows 98, yet we still get a new, non backward compatible supposedly more featured version every couple of years. Indeed Microsoft even today, still owns this market and drives it through incremental innovation.

There can be no doubt that little “i” is far easier to manage than big ‘I’; and little ‘i’ carries far less risk.

So what is it to be?

For my money, little ‘i’ wins pretty well every time. However, if you do wish to have a go at investing in a disruption, use the tried and tested “outrigger model”, as discussed in my previous insight, as this certainly mitigates much of the risk.

**** END ****

Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries. www.matrixthinking.com

in another guise?

                                                                                                   © Roger La Salle 2010

 Background

Some months ago I sent out an article that mentioned “Open Innovation”, finally this is starting to get some traction, and it’s about time. However let’s not let the boffins turn this into “rocket science” as so many have done or attempted to do with innovation.

Keep it simple, that’s the message.

I recall speaking at a number of conferences and repeating that in reality innovation is really pretty simple, only to later be asked to stop saying that. If it’s simple, we can’t charge enough I was told.

Nice one I thought, but why make something that is fundamentally easy seem difficult?

 On Open Innovation

Open innovation is about looking beyond your own horizons and connecting with parties where the sum of the two is far greater than the individuals. However, in some cases people are wary of this model, and maybe for good reasons that may include:

• Loss of control
• IP and ownership disputes
• Risk, both financial and career

These risks can be managed if there is first awareness and a collaboration model plainly laid out in advance. Too many collaborations can end up in disaster if the rules of engagement are not first well though through. Just ask many who have started a business as a partnership only to see it later fail in bitter dispute.

I also refer to a previous article I wrote on “Connecting the Dots”. May I suggest this is simply open innovation in another guise, so too is “Opportunity Capture” a subject I have been speaking on for years.

I include a brief extract from the article on “Connecting the Dots”. I wonder who may have connected these dots, as each connection is a business opportunity just waiting to be grabbed:

Physiotherapy and the reduction of carbon emissions?

• The tooth brush and ceramic crystals?
• Extruded plastic “core flute” sheeting and aluminium extrusions?

Going Forward

Even if the dots are marvellously connected many initiatives still fail in the gestation and commercialisation phases.There three ways of going about this most important phase:

• One party takes the lead role
• Joint venture
• The “Outrigger” model.

Especially for large organisations it’s this latter model that I see as the one that works the best. Indeed IBM was a great exponent of this model when it decided to move from just “Big Blue” to developing and selling PC’s.

Ownership of a project, direct responsibility, fast nimble action and competent management is the ideal model. Further, this is a model where so called “disruptive” innovations can be tested without serious risk to the host body.

The Input

As with data processing, rubbish in equals rubbish out.

The key to success is first a good idea, all successful businesses start with a good idea.

This is where “Opportunity Capture” comes right to the fore. Call it open innovation if you like, but I have still yet to see a formal open innovation model that actually provides a structured search mechanism for an opportunity.

May I suggest “Opportunity Capture” is just that!

In conclusion

An extract from a past article on this very subject a few months ago:

Opportunity – the Next Wave

In addition to innovation, a new wave is starting to build, that of Opportunity capture and the systematic search for opportunities.

In this domain opportunity is defined as: “An observed fortunate set of Circumstances” ©RLS 2000

You can teach your people to become opportunists, teach the important things to observe and move your people from being mere operators to become opportunists.

There is little doubt the wave of “opportunity” is gathering momentum.

                                                   **** END ****

Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries.  www.matrixthinking.com

                                                                                                  © Roger La Salle 2010

 Change is the order of the day!

 There would be little doubt that businesses, whether large or small realise that in order to stay ahead of the game it is essential to be constantly renewing their offerings. Whether it is products, processes, services or simply the way you do business, change is essential.

 Long gone are the days when we could be complacent and expect things to continue as usual. If it’s not the internet and the rise of e-commerce, ever changing government regulation, the growth of credit cards, new technologies and materials, things are constantly changing. Further, the pace of change is ever accelerating.

 Many businesses challenged by the need to change have embraced “creativity” as a change medium. But what does this really mean – and can it be systematically applied to a business?

 I believe that “creativity” as a tool that endeavours to identify new opportunities is a little too generic. Just asking somebody to “be creative” really has no starting point.

 This is where the more focused approaches of Invention, Innovation and Opportunity Capture come to the fore. These are “hard tools” that are immediately applicable to any business.

 So what’s the Difference?

•  Invention

 An invention, by definition requires an element of novelty in that there needs to be some part of the idea for which no “prior art” exists.

 Perhaps a good simple definition of Inventions is: “Products without precedent”

 Game changing inventions are often the result of Pure Research, such as the development of the semiconductor transistor, the laser, the early day vaccines that completely revolutionised medicine or new materials such as nylon, plastics and Teflon etc..

 Applied research, is work done to develop an invention with a clear target market in mind and is vigorously pursued by many large companies. But in this case, the outcomes are possibly best described as Innovations as their starting point was the knowledge of a real need if a solution to a particular problem could be found.

 The flat screen television is a classic example. Though the technology it embodies includes many inventions, the clear market aim was to “innovate” the large square box TV with the sure knowledge that a market success would be the result.

 How right they were.

•  Innovation

 Innovation is best defined as “Change that adds value” and this is a call to action.

 This definition is founded on two important principles:

 There is nothing that cannot be changed in some way to add value, whether it is a product, process or a service, or simply the way you do business

Changing something that is already well accepted in the market place and making it even better is a sure way of almost risk free new business. Simply find any product, process or service that is in widespread use and make it better. In doing so you can almost guarantee that you will have removed the single biggest risk in business, that of market failure. Of course the flat screen TV is a classic example.

 The principles of Innovation are extremely simple, all that is needed are some simple tools and some people willing to explore anything you perceive to be in widespread demand – the outcome will be a clear winner in all but a few cases.

•  Opportunity Capture

 This is what I like to refer to as the big picture as it encompasses both innovation and invention.

 Ideally with both invention and innovation we require a starting point, something on which to focus our attention.

 “Opportunity capture” offers just that, it’s the seed we need to spawns both invention and innovation.

 Opportunity, defined as “An observed fortunate set of circumstances” can easily be taught to people and systematic opportunity search methodologies can be put in place that not only teach your people to understand what an opportunity looks like, but moreover inspires them and provides the tools with which to search.

 Opportunity is the real game changer and perhaps a better term to describe what is presently referred to as “open Innovation, though even in that case the open innovation model still fails to put in place a systematic opportunity search mechanism.

 Where to from here?

 It goes without saying that the need to change is ever on us, research based invention is both expensive, risky and has in many cases has an extraordinarily long time to market.

 Innovation is both simple and relatively risk free, if done properly.

 The real secret that should underpin all change endeavours is that of structured opportunity capture, that’s the big picture.

                                                          **** END ****

 Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries.  www.matrixthinking.com

                                                                                                  © Roger La Salle 2010

 Traditionally

Business is best defined as: “Creating wealth through profitable transactions”

I came to this definition many year ago after having won a job as General Manager of a medium sized company and later boasting to a friend that revenue has increased three fold under my guidance. “Great he said, but what about profit”?

 This was a great question.

Business is about profits, and indeed every department within a business should be contributing to that, even if they are so called “off-line activities” such as perhaps the training manager or the IT Department.

 The Simple Arithmetic

In simplistic terms the profit and loss sheet tells the story of a business and is comprised of just three components:

Revenue less Costs = Profits

 Reduce costs and reap the benefit?

 There are just two ways to increase profit.

The first is to reduce costs, thus profits will naturally rise. But beware of the old adage:

“You can’t cost cut your way to prosperity”. This is so true.

Many initiatives such as “Lean”, “Continuous Improvement”, “Six Sigma” and a host of other efficiency measures target the cost elements of a business. Unfortunately, although these may make you more competitive they will not make you competitive against low cost labour countries, nor in general will they increase the landscape of opportunity. Put simply, they just allow for more profitable operations from the same revenue base.

 Business Building

The only way to increase your business in real terms is to focus on building the top line, the revenue, and there are only three ways that can be achieved.

 1        More Sales to the same market

This is easily achieved as a short term measure by the addition of sales staff, increased incentives and perhaps more advertising and promotions. But this is not a sustainable endeavour and is too easily matched by competitors. Indeed increased expenditure on sales endeavours may be seen as the reciprocal of price cutting aimed at increasing market share. In price cutting, the customer is the only winner. Furthermore this initiative is again easily matched by competitors.

 2        New Markets for the same products

Opening up new markets, perhaps exporting or entering places where products of your type have never before been sold is another way to increase revenues, but this is both expensive and can be extremely risky. Furthermore, once you have done all the work in creating a new market – guess what – you have now laid the perfect foundations for your competitors to follow. This alone is not a good sustainable strategy on which to build your business.

 So what’s the third?

The third and only way to continue to expand your business is to constantly provide new and improved products and services and new ways of doing business – this is innovation. The search for new ways must be sustained and endless or you can be sure business stagnation and eventual failure will be the result.

 Indeed, as stated is some of my earlier work, statistics from USA based research cite the life expectancy of a publicly listed company in the USA today as being less than ten years, compared with some 65 years in the 1920’s.

 Companies that fail to innovate, ultimately fail to exist.

 Innovation and Opportunity Capture is the Answer!

Most business people would acknowledge that innovation is the answer, but unfortunately many confuse innovation with the abstraction of “creativity” and have not given sufficient time to understanding the difference.

 In short, innovation when properly applied is a tried, proven and rigorous tool for business building.

Even less understood than innovation is the formal process of “Opportunity Capture”.

Indeed you can easily show your people how to embrace the exciting and systematic discipline of opportunity capture, and it’s all so easy.

 Where to from here

There can be little doubt that the third way of new and improved products and services and ways of doing business is the only way to reliably grow a business.

So after the cost removal processes have been initiated, it may be time to start addressing the top line.

 That’s the way to build a business.

                                                         **** END ****

Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries.  www.matrixthinking.com

How do you operate?

Have you ever worked in a company where the boss or your manager hordes information? Unfortunately this is not all that uncommon. The old saying goes that “Knowledge is Power”, and those of us that are insecure in our abilities or feel threatened by those around us try to remain in control by hording information.

In fact I know of one company where the Managing Director actually leaves notes lying around with incorrect or inaccurate information. The aim of this of course is to retain power by keeping the troops in the “dark” or better still, confused. Can you believe that?

The question is: what’s your modus operandi?

Many businesses have embraced innovation and opportunity capture as an essential business tool to survive and win in these days of ever increasing information flow, market intelligence, and speed to market. There are many innovation/opportunity models including that of so called “Open Innovation”, and what is best described as internal or “Closed Innovation”.

Closed Innovation

In this case the company has all its innovation endeavours conducted and held tightly within, there is little sharing of knowledge and little interest in eliciting the assistance of outsiders to enhance their innovation initiative. Indeed the managers of these tightly controlled programs use their skills to drive the innovation program. Unfortunately, they may be missing a lot.

Open Innovation

In this case, though the business remains in control of its destiny and direction it enhances its innovation initiative by making connections to a seemingly disparate groups of outsiders and companies all looking to expand their horizons by building on combined know how.

These days, there are so many diverse technologies and specialties that it is simply impossible to have a grasp on what is happening on all fronts, thus the connected model has great merit.

Connecting the Dots

One of the great skills of clever entrepreneurs and innovators is to see the linkages between seemingly unrelated issues. This is where in the open innovation model, broadly skilled technologists and open minded thinkers come to the fore.

For example, suppose I run a lumber business. That is the business of cutting up trees to provide timber for the building industry. What possible connection does that have with mathematics? Perhaps none you may think, or certainly the old fashioned timber manager may have thought. But in fact linear programming, quite an old science these days, when employed in that industry can optimise the way timber is cut to provide massive additional profits. But in the closed model, such knowledge may never be acquired, or if it is, only by word of mouth with other operators who may have long since acquired the technique.
Similarly, the technologies developed in putting man on the moon. How could that possibly connect to the business of pots and pans? Teflon coating is the answer.

• Clocks and cell phones or radio paging, is there a connection? Indeed there is. Imagine having a clock equipped with a radio receiver to receive time signals and thus keep perfect time, and even update for Summer Time changes. Such clocks are now available in Australia.

• The packaging business and home insulation? Of course, use bubble wrap as the ideal insulator, it’s light weight, cheap and easy to install and fire retardant grades are available.

• Optics and home insulation? Of course, use a reflective coating on one side of the bubble wrap to reflect radiated heat.

• Physiotherapy and the reduction of carbon emissions?

• The tooth brush and ceramic crystals?

• Extruded plastic “core flute” sheeting and aluminium extrusions?

The reader can ponder the latter three, but the connection in each of these cases has spawned real businesses.

There is an endless list of these seemingly unrelated disciplines that can be connected with an open innovation approach that encourages a wide search horizon.

Indeed this is why the new paradigm of “Opportunity Capture” is now emerging as the preferred approach to the more narrow discipline of traditional innovation.

What’s the Message

Managers in the open innovation space do not need to be great technologists, as perhaps with the closed model. Instead they need to be great net-workers, able to build bridges between people and companies. This is quite a different skills set to that of the managers operating in the closed model.

Thus, stay open minded, expand your horizons and embrace the art of formal opportunity search, where the reach is unlimited.

**** END ****

Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries. www.matrixthinking.com

The tightening of credit markets has made running prosperous enterprises even more difficult, and whilst some ‘wring their hands’ and lament the good old day of plentiful credit, how many people are looking at their business cycle time as an alternative to extended credit or increased overdrafts?

What is “Cycle Time?”

Cycle time is best defined as “the total time in business it takes from receipt of an order until payment is received and banked” © RLS 2006. In many businesses the cycle time is typically 90 days. In some cases it is much longer. For complex projects payment can be staggered over many years and final payments are often withheld for a guarantee period, extending even further the total cycle time.

Negative Cycle Time

Some businesses have a negative cycle time; that is the money is received and banked even before the goods or services are delivered. Airline tickets or pre-paid phone cards are typically negative cycle time businesses, so too are on-line sellers such as Amazon. Indeed in the latter case there is not even a need to have expensive infrastructure, such as in the case of a telco or an airline. Amazon as a business needed nothing more than a PC and a web site as its investments to get started and create a highly successful negative cycle time business.

“Cycle Time” can mean the difference between Success or Failure

It is important, especially in smaller businesses, to understand the influence cycle time can have on success, or perhaps failure. Indeed there are many stories of business that have failed because they grew too fast and were unable to provide the finance to support that growth.

In simplistic terms, if a business is shipping $100K per month and is operating on a three month cycle time, a minimum of $300k is needed to finance the business. Banks, especially these days, are loath to finance businesses against orders, but rather look for bricks and mortar assets as collateral. If suddenly the business starts shipping $200k per month with the same cycle time, now $600k is needed as working capital, and if that is not available, then foreclosure may be staring you in the face.

However, if the same business can reduce its cycle time to just 1.5 months, then sales of $200k can be supported with the same initial equity base. That’s how important cycle time is, but unfortunately, this is often overlooked.

Customers are slow to pay

Doubtless the greater part of cycle time is the delay in customers paying their debts.

Whilst we can push for deposits, short term financing or even early payment incentives, we should not ignore the inbuilt delays inherent in our own internal processes. If these can be identified and rectified any reduction in cycle time will be immediately seen on the bottom line as pure profit.

So what’s the solution?

Some businesses look to “factoring” their debts. This essentially means taking a short term loan for the period of financial stress, but in many cases the interest charged is sufficient to wipe-out any potential profits. Thus, whilst factoring does have a place, look closely at the costs before seeing this as a panacea. Yet another means is to offer discounts for early payment.

Unfortunately, whilst both of the above may improve cash flow somewhat, they come at a cost.

A better solution to gaining a partial reduction in cycle time is to the take immediate deposits on a customer’s placement of an order. Deposits from customers are seldom seen as your ploy to gain some payment a little earlier, but more likely embraced by many as a means to secure their place in your delivery queue, and thus they are not viewed negatively.,

The best solution is to analyse your entire business cycle time. This is best done by dissecting the business into its serial components from receipt of an order, to shipment, and debt collection and to look for ways cycle time can be reduced.

Process Innovation is one way of investigating cycle time in a systematic manner. It is quite amazing what effect small changes to processes can have in delivering real cycle time reductions, and any gains made here go straight to the bottom line as profit, pure and simple.

What’s the message?

Process Innovation applied to the Cycle Time reduction should be seen as a means to reap hidden profits from transactions that may otherwise cost real money. Dissect and analyse your business, there is always room for improvement.

As we know, a good definition of Innovation is “Change that adds Value” and embracing this term opens the way to make innovation a relatively straight forward exercise, providing you are asking the right question.

How many times do we solve a problem and even implement a solution, only to then realise had we asked a better question we may have come up with a much better solution. How many times do we convene a meeting without having a specific one sentence idea of exactly what we wish to achieve in that meeting?

Being able to crystallise an issue to a single sentence question is so important, but few people implement that valuable practice.

Have you found the best question?

To put this into context, let me pose the question, and have you think of the answer, before reading on:

• What is the specific purpose of a written job application?

The obvious answer is to get the job, but this not correct.

The sole purpose of the written application is to get an interview, to get in front of the people making the selection.

With that clear purpose in mind, the written application takes on a different form. Indeed, what you leave out is just as important as what you include. You should lead the reader to a point where they wish to speak with you to learn more. This is quite a different approach from writing everything you can think of in the hope that will win you the job. The written application never wins you the job.

The above is a simple example of making sure you have a properly defined objective, and that it’s the correct objective.

Too close to the problem

To cite another example, recently a workshop was undertaken in a large multinational trading bank, the team came to the session wanting to resolve the question – “How can we reduce the cost to businesses wishing to raise a Letter of Credit (LC)?”  This seemed like a sensible question and was workshopped by the group for a time until they came to the “Re -Question Catalyst in the Innovation Matrix.

So challenged to “Re-question” the group digged deep searching to find the real reason they wished to lower the cost? The answer that crystallised was, so that people would be more willing to use their LC facility.

In fact, the real and best question to ask was, ”How can we inspire businesses to raise more LC’s”?

On investigating this different issue it was soon realised that the cost, maybe $20.00 was irrelevant. Why would that be a “show stopper” for somebody wishing to raise an LC for perhaps $500k or more.

The real reason people were adverse to raising LC;’s was the time and effort involved. The process was just too complex and time consuming. Yet the bank in its daily work transfers multi-millions of dollars around the world with little more than the click of a mouse. So why are LC’s so complex?

The better question, the real question was “How can we make it easier for clients to raise LC’s”? With this question in mind the workshop was continued based on a Process Innovation Matrix.  An answer was soon found.

There are countless examples of this, usually caused by being too close to the problem. Just ask any design engineer.

You can be sure almost without exception, after a complex design is implemented, and maybe even marketed, the next embodiment of the same product will be much simplified. Why, because having done it once, better designs questions and issued can now be resolved.

So what’s the solution?

The classic method of questioning with the “why” “why’ “why” challenge is one way of trying to drill down to the best question.

Another way is to have somebody quite remote from the issue present in any meeting that addresses a problem. You can be sure that a person NOT skilled in the area will ask some very interesting and challenging questions. This always helps in drilling down to the real issue and the best question.

Most often when a group of people comes together to investigate a burning issue, a solution will be found, just make sure the best question has been asked, a question that leads to the best solution.

Simply put, innovation is best defined as “Change that Adds Value”© La Salle 1999.

That is, take an existing product, process or service and innovate (or change) it in some way to add value, this is a very low risk way of business building.

A structured thinking matrix (or rectangular array of “Seeds” and “Catalysts”) for services had been developed that provides a rigorous way of innovating services.

What is less understood are the concepts of Service Efficiency and Quality in the service domain?

Efficiency and Quality in the World of Tangibles

In the world of tangibles, one of the best definitions of quality is “conformity to design”.

That is, decide what is it you wish to make and do it repeatedly without change to meet an agreed specification; and for many manufactured products there is absolutely no benefit to the customer in exceeding the specification or tightening tolerances.

For example, increasing the tolerance on the diameter of a 75mm long nail from say +/- 0.01mm to +/- 0.001mm would be of little benefit to anybody, but would no doubt cause all sorts of production problems and added costs.

In the manufacturing world, for the purpose of Process Innovation it is appropriate to define process efficiency as:

*Process Efficiency   =   Output/unit time ÷ Costs

*Consistent with the maintenance of quality.

Efficiency and Quality in the World of Services

In the services sector things are a little different.

Consider a call centre where the performance specification (or “Service Level”) states that staff shall always answer the phone within three rings.

Suppose somebody then finds a way to answer the phone every time, within two rings. This variance from the specification would be seen as advantageous to everybody, especially the callers. Indeed improving even further and answering after just one ring would be even better.

Unlike the manufacturing sector, in the services sector there is really no limit to the benefit afforded by improving service level (or quality of service). The important consideration is, at what cost, and what is the benefit to the customer.

Drawing an analogy from Process Innovation from the manufacturing sector leads to a useful metric for Service Efficiency as:

Service Efficiency    =   ­ *Service Level ÷ Costs

*The secret in the service domain is in properly defining “Service Level” as one of the key performance or quality measures.

Service Metrics are Essential

It is important to establish typically five metrics or KPI’s for key people and deliverables in your services enterprise and to use these as a basis to systematically “innovate” your service efficiency.

Without these properly defined and quantifiable metrics there is little point in attempting any sort of innovation at all.

Finally, even though the above metric for service efficiency refers largely to the service sector, remember that even a manufacturing enterprise has a significant element of service fulfilment in the interface with your customers. This too can be measured and innovated in much the same manner.