Monday, May 25, 2009

Dew We Think Detroit Ready for Next Year's Modules?

Charles C. Mann writes in the June 2009 issue of Wired about the need for fundamental change in how Detroit manages technological innovation and the explosion in automotive related start-ups. Venture capital supplied roughly $300 million to fund auto-related companies in 2008, a 3,750% increase from the $8 million invested in 2003. New enterprises like California-based Tesla Motors and Transonic Combustion are bringing new innovation and a garage-shop, Mountain Dew and pizza-fueled entrepreneurial excitement to an industry that's been mostly hostile to outside innovation.

Mann writes...

If a domestic auto industry is to survive, it will have to incorporate and encourage breakthroughs from outsiders....Automakers will need to transition from a vertical, proprietary, hierarchical model to an open, modular, collaborative one, becoming central nodes in an entrepreneurial ecosystem. In other words, the industry will need to undergo much the same wrenching transformation that the US computer business did some three decades ago, when the minicomputer gave way to the personal computer.

By shifting away from vertical integration, [the American car makers] will inherently play a smaller role in the overall industry. As system architects, they would lay down the framework in which independent developers work, communicating and enforcing those standards with would-be suppliers.

...[I]n seeking a model for outsourcing in a heavily regulated industry, automakers might look to pharmaceutical companies, which also operate under severe regulatory, legal, and safety constraints. Manufacturing is simpler for drug companies, but the process of testing new products with clinical trials is nightmarishly complex and costly. Yet this has not prevented drug firms from relying on outsiders; they routinely buy startups and test out their technology. Many or most of the acquisitions prove unusable, but the successes pay for failures. Managing and using outside innovation is difficult, but it has helped keep the US drug industry alive in a climate of unforgiving competition.

Mann makes a strong case, but there hardly seems to be support for this revolutionary approach to innovation within the industry. Although hit hard by the economy, Toyota and Honda still rely on internal and their traditional suppliers for innovation and have made no attempts (at least publicly) towards using the pharmaceutical model for new innovation. Ford, the most likely of the Detroit 3 to survive without bankruptcy protection, or Fiat, who will soon control Chrysler, are not publicly signaling such a radical shift in their engineering innovation processes. Perhaps the remnants of GM will bite, but it sure seems like a long shot to get Detroit to give up percolated coffee for Mountain Dew as the innovation beverage of choice. The very interesting thing is -- it might not matter what GM, Ford, Chrysler/Fiat, Toyota or Honda do, as their ability to dominate an industry has been severely compromised.

Saturday, May 9, 2009

Reid Hoffman and Greenspace

Another great read in the May 2009 issue of Inc. magazine, the "How I Did It" section features the story of Reid Hoffman, founder of LinkedIn. I'm a huge fan of LinkedIn -- I'd say it's the most relevant and useful of all the social networking sites. You'll notice my LinkedIn profile link on the right-hand column of this blog, and you can also find my profile by clicking here.

At Stanford University Hoffman studied symbolic systems, which he describes as the combination of artificial intelligence and cognitive science. He worked at Apple and Fujitsu Software before launching Socialnet in 1997. He left Socialnet in 1999 to join Paypal before it was acquired by eBay, and then launched LinkedIn in 2002.


"The trick to doing well with these things is to be in a place where people are saying, Hey, that's a crazy idea. If you're right, there's the opportunity to produce something really big. You
want to be one to three years early. You want to start before others think it's an easy idea. It's much harder to be successful when 10 similar things are being financed."

There's analogy to this philosophy in coaching soccer. To get the team to advance the ball to the goal, often the best opportunity is the play the ball to an open area -- "Greenspace" -- where your attackers can gain possession of the ball and continue the attack with many more options for creative play. Unfortunately, many inexperienced players will play at the nearest available option -- whatever appears safe, because the player in control of the ball can visualize the next steps. It's often not particularly productive, because your opponent sees the same scenario and can react accordingly. That's why trust and confidence in your teammates is so important in sports -- you want to be able to exploit the skill and creativity of your teammates to go somewhere and do something the other guys didn't think was possible.

Tuesday, May 5, 2009

Why Circuit City Can't Blame the Economy

In the May 2009 issues of Inc., Joel Spolsky writes about the demise of Circuit City. Spolsky notes that everyone, from Circuit City's CEO to the Associated Press blamed "poor economic conditions" for the end of one of the nations largest retailers. Yet somehow Best Buy, Apple, and independent electronics retailers like B&H Photo seem to thrive in these conditions -- folks literally line-up on weekends to make purchases. Poke a little into the Circuit City business model, and you'll find the real reason for the failure: COMPELLING THE CUSTOMER TO SHOP ELSEWHERE...
  • Aggressively unknowledgeable salespeople, caused by firing anybody who knew anything about electronics.
  • Aging mechandise, including offering "Y2K Ready" laptops in 2007
  • A frustrating experience once the customer decided to buy
  • Uncompetitive pricing, including raising prices for the liquidation "sale"

Yuck! No tears shed here. It's how capitalism is supposed to work -- treat your customers poorly, and you will fail.

Monday, May 4, 2009

Every Product Manager's Dream: Obsessive Consumers

In the May 11, 2009 issue of FORTUNE check out Beth Kowitt's article "True Obsessions". Here are six stories of people who take consumerism to a whole new level. These folks don't just purchase the latest products from their favorite companies, they continue a deep (and perhaps slightly psychotic) emotional committment to a specific brand through how they've integrated the products into their lives.

Questions for marketing and product managers:
  • Who are your obsessives?
  • Where are they? How do you find them?
  • Are you giving your customers the potential to be obsessive about your product?