Just like the solution is to have groups of people in a city and provide standardized transportation in and out of the city, organizations will have to migrate to future state standardized platforms. This migration itself could be in baby steps or it could be a "big bang" transformation. While the "how to get there" is a function of the size of the legacy portfolio, size of the organization, mission critical nature of the legacy technology, budgets available for capital expenditure etc.. as long as the "where to get to" is clear and all projects contribute to moving towards the harmonized standardized platform, organizations will eventually get to the standard platform.
Once they are on these standardized platforms there is hope that these standardized platforms will provide logical and natural progression and modernization in the ever changing environment businesses operate and need to adapt to. Implementation today increasingly is through standardized ERP platforms from vendors of the likes of SAP or Oracle. Little wonder these ERP platforms are extremely popular in the market today. Alternatively well orchestrated set of business services enabled through web services is the future. A radical shift by jettisoning existing legacy technology baggage to altogether leapfrog to the future by switching to "Software as a Service" (SaaS) is an alternative solution for this problem. It is little wonder leading global organizations like Microsoft, Infosys and IBM are significantly investing in SaaS as the future computing platform for businesses. Till then you can be assured that the business community will continue to keep asking "are we there yet!?"
]]>Consider this…you want to vacation in the much talked about Cancun to explore those mysterious Mayan ruins that always fascinated you. Off you go to your friendly neighbourhood travel agent (err.. ok.. maybe… sidestep.com or travelzoo.com) to help you plan the whole trip. How would it be if the agent told you about the latest and greatest on Cancun, how the trip to Cancun is the soul's journey into the distant past that will transform you as an individual (all right..you get the point...)…but with one catch - he will not tell you nor does he know how to get you to Cancun from where you live today say, Boulder city, CO. He only knows how good Cancun is and why you should vacation there!
]]> While you naturally shake your head in disbelief on the likelihood of such a scenario today, this situation closely reflects today's technology world. Business executives are constantly told how technology can transform their businesses, capture new markets/customers, dramatically reduce their costs, drive step change in their margins etc... There is an endless stream of technology vendors flashing their wares on how their technology can solve world hunger… but with one catch - just like the friendly travel agent they have no idea how to help you move from your existing technology landscape to the promised land. How will a bank with a 52 million customer base move their core banking platform from a legacy Hogan system to a modern world core banking platform with zero/minimal risk? How do you provide a seamless zero downtime transition from an 24X7 anytime anywhere internet banking infrastructure to a modernized platform? How will a transportation & logistics provider transition from a legacy track & trace system that is used by users in 223 countries globally to a modern Transportation Management system? How does a global auto insurance business seamlessly cut-over from a legacy claims processing system to a modern claims processing platform that can cut processing costs into half or automatically detect fraudulent claims through advanced analytics? How does a telecom giant transition risk free from a legacy billing system that processes millions of transactions of subscribers worldwide to a modern billing platform with zero errors?There are very little standard answers to these questions. This is the question the CIO faces everyday as they constantly juggle the parameters of "more from less" mandate (read less IT budgets than last year but deliver more), risk, performance, regulatory compliance, modernize etc..
The deep chasm between new technology that is available today and the legacy systems is a reflection of the evolutionary nature of technology that is still growing up. An ever emerging set of standards, new sets of platforms, open source-proprietary software dual etc.. is also clear symptomatic evidence of the state of affairs. There is no one automated way to migrate all my bank's customers to a target platform…oops there is not even one single source of customer data in the bank. (A separate solution termed "Master data Management" promises to solve this age old problem. Details of this on how Michael can be stored in IT systems as "Mike" or "Michael" thereby causing chaos in businesses is another day's post). Then there are business processes to be changed, change management, risk management etc.. A consistent clear-cut transformation journey that is robust and risk free is amiss from solution vendors…and herein is the real challenge.
(Contd.....)
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Many automobile companies are sourcing aggregates and restricted manufacturing operations to assembly and painting, the next step is to out source the entire production. Contract Manufacturing is successful in some industries like electronics, consumer durables (white goods), but it is yet not popular in auto as this is still considered to be core function. There are some good examples to show that this can work in automobiles too - Magna Steyr is manufacturing for 6 automakers and manufacture models like BMW X3 and BMW Mini.
Contract manufacturing can be an excellent option when capacities are a constraint or companies want to reduce time to market or reduce risk while introducing a new model by keeping capex low. It is not as easy as it sounds, there are risks in this too, the contract manufacturer would expect min commitment of volumes and IP protection can be a potential concern. Having said this, these are issue that can be managed and automobiles companies can then focus on core functions i.e. Product development (IP creation) and Brand, the 2 core functions that creates differentiation.
If this happens in a big way, then China and India stand to gain where the cost structures are low, but India stands to gain over china as India had better credibility when it come to IP protection.
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Increased regulations and alternate fuel technology is going to take a lot of investment, therefore companies have to re look at their cost structures and generate enough profits for future investment.
]]> Companies are Outsourcing, Shifting manufacturing facilities to LCC or Contract Manufacturing and benefitting from that, but what companies require is a more wholistic and integrated approach, look at impact of an activity across the value chain and lifecycle of product.Companies have to look at every element of cost and look at reducing it, be it product development cost, material cost, inventory cost, marketing cost, employee cost or warranty Cost.
Let us take a look at the impact of a relatively low cost line item like warranty - the difference in warranty cost as a % of revenue between the best (Toyota) and worst (Daimler Chrystler) is a around 3%, Daimler spent $6.1 bn as against $2.37bn of Toyota, where as General Motors’ warranty cost was $4.46 bn and Ford $4.10 bn. Toyota clearly saved over $2 billion on warranty alone which it could invest in new product development for e.g Hybrid cars.
Daimler, Ford , GM could add 2 to 4 billion on their bottom line if they managed their warranty cost better (not by reducing warranty term but increasing Quality and Reliability) .
Image the savings that can come from big ticket item. Are companies doing enough? Are they thinking differently? Are they pushing their boundries? Are they thinking innovatively? Are they collaborating with partners?
]]>As I've written earlier, in the lexicon of modern-day business, innovation and isolation are firm opposites. The most successful companies have embraced unplugged approaches to innovation, which seek to allow the judicious flow of information, ideas and insights across what would conventionally be watertight walls.
Unplugged approaches epitomize how innovation happens on our ever-flattening and increasingly hyperconnected planet. Innovative new companies such as Innocentive have even built a business model around helping such unplugged innovation thrive.
But let us pause to dwell upon the fate of the new products being birthed thus.
Across industries, the mortality of new products has traditionally been high (as high as 60%, or even higher depending on which source you consult). Clearly, new product innovation is fraught with risk. Can unplugged approaches to innovation help ameliorate this risk?
I believe they can – particularly those that emphasize blurring barriers with customers, such as Co-creation and User-centric innovation. These approaches to innovation posit that you should begin working with customers long before the new product is complete. They obviate the conventional need to have a complete product before coming to market, instead allowing the product to evolve in the direction of a more organic fit with customer needs.
In other words, rather than assume if you build it they will come, these approaches take the more pragmatic route of saying, if you invite them (customers) to help create the product, maybe they’ll use it!
]]> Any new product innovated thus - whether it represents a minor incremental innovation or a truly disruptive one - stands a much greater chance of customer acceptance. To validate this hypothesis, let's look at some of the most ‘heralded’ new product failures of recent years*, and examine if these products may have benefited from greater customer involvement at the pre-launch development stage.
Iridium, a system for satellite telephony that had stratospheric ambitions, was a technological marvel. Indeed, it had world-flattening potential that was sky high. Sadly, it never really took off - in large part because the handsets were bulky, unwieldy and difficult to use. They also needed line-of-sight access to the open sky. Understandably, few customers relished having to go outdoors to make a telephone call.
New Coke, introduced with much fanfare in 1985 with the ambitious plan of replacing the company's flagship Coke drink, was summarily rejected by consumers. The company was surprised, as all consumer research had shown that consumers would welcome New Coke.
WAP (Wireless Application Protocol) sputtered primarily because most WAP service providers forgot usability issues (most users only had cellphones with tiny monochrome screens at the time), and did not work hard enough to ensure that the customer would have sufficient reasons - i.e., content - to access WAP sites.
In each case above, the product was impressive and had indubitable merits. In each case the product failed primarily because either the customer was not involved in the process of bringing the product to market, or was involved too late - almost as an afterthought. Whether in the case of Boo.com, WAP or Iridium, it is amply clear that working more closely with customers right thru the development stage would have saved the promoters much headaches, and some late surprises. It would have allowed them either to come to market with a product that met customer need more closely, or would have given them sufficient insights to abandon the new product early, avoiding the cost - and mortification - of post-launch failure.
Co-creation for Coke creation?
The case of New Coke is particularly instructive. Here the new launch faltered on two counts. One was that only "sip" tests were conducted. In actual use, consumers do not just sip the drink, they drink it. More thorough home tests could have revealed greater insights into what consumers would prefer to drink. However, the second mistake was far more egregious. They underestimated the deep emotional attachment that people had for the traditional Coke drink ("The Real Thing"), and did not anticipate the sense of betrayal it's stoppage would trigger in a sizable consumer segment. Clearly, both mistakes could have been avoided in substantial measure, by engaging much more closely with customers long before launch.
While the above analysis is admittedly not high on scientific rigor (hey, this is only a blog, not a scholarly research paper!), it provides sufficient evidence that approaches such as Co-Creation and User-centric innovation can go a long way towards saving new products from the graveyard (or wherever failed products go). And for products that belong in the graveyard, these approaches are likely to help consign them there speedily.
It’s important not to over-simplify here. The reasons for product failure are myriad, and often embedded deeply in – and inextricable from - the specific organizational and market context. And companies typically put their best resources behind new products. So I’m not suggesting any simple-minded formula for new product success – there isn’t any. But if there can be any such formula, it will certainly include working closer with (and to) customers!
Also, the smartest companies, while learning to thrive in the flattening world, have already internalized this lesson – it may not be a coincidence that the product failure examples above all date to several years ago!
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So everybody from Ben Bernanke http://www.guardian.co.uk/feedarticle?id=7357595 to your neighborhood grocer is talking about a potential recession in the US Markets and its potential impact on the rest of the world. Consumer confidence and business confidence in the US have been the lowest in February. However, US export numbers are holding up and the trade deficit is narrowing. There are mixed signals from retailers as well. CFOs of decently performing companies are exercising caution as they go about planning the year’s budgets. It’s easy in such times to cut down on IT spending and capital investments in technology. Ever wonder in such times, what happens to our visionary dynamic Flat World CIO. With new IT budgets that are either flat for the year or have decreased marginally is it a good time for the CIO to lay low until things change…. or is it time to stand up and be counted?
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As the Infosys Retail, CPG & Logistics vertical is now global, I get the opportunity to meet CIOs not only across the US but also across the UK and Europe on a regular basis. In one of my recent Europe visits I read a very powerful ad punch line “Disruption is inevitable; who gets to be the disrupter is up for grabs”. From my conversations with select CIOs, I can see some of them choosing to be disrupters in uncertain times, choosing to make a difference with flat and lower budgets, choosing to adapt to the Flat World faster, winning in the turns.
Let me provide some examples
A senior IT executive of a large firm in the Benelux region remarked to me last week “I see the slowdown as an opportunity. I have been trying to create the case for automating a lot of our internal data cleansing, data massaging and data management efforts that are manual today. But because of various internal political reasons, I have not been able to do so. Now, the business case is more compelling than ever. We need to use technology to automate these efforts.”
Another global CPG firm is beginning an SAP rollout in the European region. Before they embark on the expensive and risk-prone journey, they have set aside 4-6 weeks to brainstorm with their best creative thinkers (internal and partners) on unique ways to cut costs and crash timelines for this implementation. Partners are tripping over each other to provide the most breathtaking wild ideas to achieve the same. It will take just one idea out of several to make a difference. It’s a unique approach but one that was conceived by the CIO for these difficult times.
Private equity firms recently are trying hard to get the CIOs of their portfolio companies to adopt modern technology and outsourcing trends faster than they would typically do. The CIOs I have seen are eager to embrace these trends especially in these times.
In trying times like this, several companies are looking at international expansion as an important option to grow top-line sales. Again, CIOs are leading the charge as they invest in developing, implementing and rolling out systems that will work in new countries and continents.
It is CIOs like the above that allow companies in tough times to win in the turns. Automation, outsourcing, new business ideas, innovation, etc. are best explored in a slowdown and a recession. That’s when your competitors are sleeping. That’s what we call “winning in the turns” – an important Flat World shift. CIOs, more than anybody else, are in a good position to leverage such shifts and guide their companies through the storm.
What was the logic that drove the conception of this incredibly innovative product? In essence the logic was the following:
-the personal transportation needs of budget-conscious customers today are being met by 2-wheelers (scooters, motorcycles) and small cars.
- there is a large gap in between the 2-wheeler and the small-car markets, and in that gap a market may exist
-if we can create the right product, we may be able to serve that "in-between" market.
The above logic illustrates the general principle behind what I am calling innovating in the interstices. The principle is: pitch a new product in the interstice (gap) between two adjacent but distinct markets, on the premise that in that gap lies a market waiting to be served.
What distinguishes such "interstitial innovation" is the process of discovering a potential market segment that is unserved - looking at two adjacent markets and asking the question, could there be an untapped market in between?
A few illustrations and observations should help clarify what this innovation theme is about:
1. A company that "innovates in the interstices" is sometimes a company that is already serving one or both of these adjacent markets, but it does not have to be. Southwest Airlines* used precisely the above principle to discover a travel market "in between" driving and flying to one's destination. Southwest was not an existing airline but a completely new airline designed from the ground up to fit into this new market. Of course, most incumbent airlines entered this market segment as followers (much later, and in some cases too late).
]]> 2.The process of designingthe new product that will serve the interstitial market is likely to start with the product currently serving either of the adjacent markets, and adapt it to the needs of the interstitial market. In designing the Nano, the Tatas first tried starting from the 2-wheeler end: take a motorcycle and fit a roof and other parts onto it. They soon realized this was not the way to go, and so tackled the problem from the other end: take the smallest car currently available and figure out how to make it cheaper.3. The new product created to serve such an 'interstitial' market is usually not a simple hybrid of products currently serving the adjacent, existing markets. In general it will have some features of at least one of those products, but also a few features that are unique. McDonald's introduced its innovative chicken snack wrap in 2006, designing it to meet the needs of consumers who wanted something heavier than a snack, but lighter than a meal. Although it included several ingredients found in a variety of snacks, it was a unique new product. Consumers have kept lovin' it, and the snack wrap has become one of the most successful product launches in the company's history.
4. Other examples of such interstitial innovation in action include- the Sports Utility Vehicle (SUV), which was conceived to fit into the market between conventional passenger cars and rugged, off-road vehicles such as Jeeps.
- The Tatas have also used this principle before, in developing the hugely successful Ace, a sub-one tonne mini-truck. This innovative product was designed to fill the large gap that then existed between the smallest mini-truck (of about 2.5 tonne capacity), and three-wheeled vehicles that were of very low capacity. This gap turned out to constitute a huge market - the Ace sold over a 100,000 units well within two years of its launch.
The reason why interstices of the kind mentioned above offer a fertile ground for new product introduction is not far to seek - potential customers who lie in between two well-defined market segments are forced to choose between products serving those two markets. Thus, they are likely to be unhappy consumers, having to "stretch" their needs to fit into either of the existing products. Many may simply be unwilling to make the required stretch, and thus end up as non-consumers. In either case, this leads to pent-up demand being "bunched" in the interstices.It is thus that, in the never-ending quest for innovation, these interstices afford a high payoff for discovering new, untapped markets.
_______________________________________________________________________________________ * it may interest the reader to know that Southwest Airlines was not the first low cost airline. Southwest Airlines, launched in 1971, used the first sophisticated low-cost airline model, but the raw low-cost airline concept had been pioneered by Pacific Southwest Airlines (unrelated to Southwest airlines) as far back as 1949.]]>
There can scarcely be any doubt that innovation is among the most top-of-mind issues facing the world of business today. The need to innovate manifests itself in manifold organizational activities, always with the goal of boosting some dimension of organizational performance.
There have been myriad approaches, prescriptions and mantras purporting to help organizations boost their innovative prowess. If you look at the most successful among these - Open Innovation, "Crowdsourcing", Co-creation, User-centric Innovation - you will find that they appear to have quite a lot in common with each other. And if you think about it a bit more, you will realize that this similarity is not a result of coincidence. It is because each has at its core the same idea: that of opening out, inviting fresh perspectives, admitting new participants, allowing new combinations - in short, dissolving conventional boundaries.
Thus, the success of the above approaches to innovation is hardly a matter of happenstance. They succeed precisely because they all hold forth a very solid prescription. This prescription is that the organization needs to blur its boundaries with the environment, allowing the judicious flow of information, ideas and insights across what would conventionally be watertight walls*. Of course, the above idea applies equally well to boundaries within the organization too.Why is blurring or dissolving boundaries in the above manner so effective in spurring innovation?
]]> One reason is that the simple problems have been solved long ago; the ones that really need innovative solutions are complex, having facets rooted in diverse disciplines, and typically need to be attacked with multi-disciplinary knowledge and skills that are not normally resident in any single organizational entity. Another reason is that such an opening out brings in new perspectives that help see things in a new light. Information, ideas and insights can thus combine in new ways. Very importantly, such an approach allows the risk so inherent to innovation to be shared by multiple entities.What common term can we use to collectively refer to the above-mentioned approaches to innovation? 'Open innovation' appears to be a good candidate, but the term has already been appropriated to refer to one of the specific approaches. And so, to collectively denote the above innovation approaches, I will use the term 'Unplugged Innovation', where the word 'unplugged' is used in the sense of 'to set free'.
Here then, are a few pointers that serve to help thrive in the new, unplugged innovation landscape. I will elaborate on some of these with examples in future posts.
Create 'multidimensional' teams. Multidimensional teams embody competencies that span conventional disciplinary boundaries. Such teams are also ambidextrous, with the right balance of left-brain and right-brain skills. Assembling teams from diverse disciplines will not be easy, but has huge payoffs. Encourage individuals within the teams to become multidimensional too. And encourage the diversity of opinion inherent in such a set-up - it can be a valuable source of new knowledge.
Make walls porous. Promote interaction externally with alliance partners, consumers, academia, and internally across functions. Facilitate that interaction with incentivization, technology support and process changes if need be.
Dont just look for new ideas, old ones are often just as good! A concept considered mundane in one field is frequently novel in another. In fact this is one of the most powerful mechanisms by which unplugged innovation works, by allowing the transplantation of ideas from other disciplines. In the same vein, ideas don't have to be spectacular to lead to useful innovation - incremental or micro-innovations can translate into significant performance gains. Our research (some of which appears in this article) has shown how useful innovation often happens based on 'old' ideas or small incremental changes.Networks are your resources. Conventional resources such as capital and employees are of course important, but the unplugged approach opens up access to another kind of resource with immense potential: networks. Social networks between consumers / prospective consumers, alliances and relationships with academia, external experts, vendors, and other partner companies, are all valuable resources that can be drawn upon.
Accept failure (even encourage it!) If all your efforts at innovation are succeeding, it probably means you are operating well within the zone of comfort. Innovation efforts that are bold and audacious will almost certainly fail at least some of the time. Failure can of course also be costly and traumatic and so the risk-sharing aspect of the unplugged innovation approach is greatly helpful in raising failure-tolerance, and hence the ability to innovate.
Go evolutionary rather than big bang. It has come to be widely accepted that the best way to create a new product or service is by starting small and evolving toward completion, in interaction with users. The unplugged approach, with its emphasis on greater involvement of users as well as other parties, strongly supports this iterative development.
Pool. The unplugged approach by its very nature lends itself to pooling - of data, brainpower, patents,.... Do we have an integrated view of the customer and her need? This may need pooling of data from across multiple organizational units that touch the customer. Will our new product need to use some knowledge that is the intellectual property (IP) of someone else? Pooling of patents may be an answer.Unplugged innovation brings with it several challenges - the boundaries that are sought to be blurred have been acquired over time, and often have good reasons for their existence. Managing and motivating teams formed from multiple groups or disciplines needs tact and maturity. Coming from different backgrounds, such teams may not communicate well, at least initially. When reaching out across external boundaries, IP, contractual and regulatory considerations can be vexing.
Nevertheless, if done well, unplugged innovation can lead to enormous dividends. The conventional, 'closed' approach to innovation is no longer as potent as it used to be.The lonely innovator is a thing of the past. In the lexicon of modern-day business, innovation and isolation are firm opposites.
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* Barriers to information / knowledge flows are one kind of levee in business, a novel concept which our research has uncovered. Among other things, this line of thinking holds that removing or weakening such levees is a promising approach towards innovation.]]>
Putting these thoughts together, what emerges is a case for using collaborative innovation for solving some of the biggest issues facing humanity – issues such as climate change, food security, basic health and education.
As Kris pointed out, the advent of the Web 2.0 technologies is changing how we work and collaborate. And as we master these collaborative technologies, it will be only natural, and expected, that we use them to help solve our biggest issues.
As we design these collaborative mechanisms, we should keep three points in mind:
]]>Interestingly, there is a debate going on in scientific circles on exactly this issue. For starters, see, Science 2.0: Great New Tool or Great Risk?
The company undertook the transformation journey few years back when it saw huge losses of $110 million in 2001 and today is set to change the rules of the game with the introduction of Nano. The learning from this is that Impossible is Nothing and companies need to constantly innovate.
]]> Nano (entry model) is priced at $2500, (which is the cost of a DVD player in Lexus) and half the cost of the next cheapest car in India. To manufacture a product at such low cost you need high volumes but this alone is not enough, there are many innovation in this product which have helped-a. Distributed manufacturing - plans are to encourage entrepreneurs to have small assembly units as this would bring down the distribution cost (ship SKD) and also the dealer margin
b. reduce cost of component by increasing volumes - In addition to high volumes from product sales, the volumes of components can be increased by designing keeping in mind reduction in part count by symetric design for e.g. the handles in Nano are same on Left and Right increasing the volume of this component by twice, similarly the instrument cluster is in the center so that same dash board can be used in left hand drive and right hand drive cars
c. Innovative design - all possible avenues have been looked at for reducing the weight of the car like the Mono Volume design, tubeless tyres, single balancer shaft for twin cylinder - all of these have reduced cost.
We have heard of lean manufacturing and the same concepts have been applied to design - Lean Design.
d. Locational advantage - The manufacturing location identified is one that will get them the maximum incentives from the government that can be passed on to customers, yet be closer to port and sorce of raw material.
All this has enabled the company to Create Globally Competitive Cost Structure and Create new Offerings for price sensitive markets.
New markets can bring with it a lot of challenges for e.g. providing service to customers - India is a country where there is 1 car per 1000 house hold (unlike US where its 2 per house hold) and majority of the country stays in non urban or rural locations where service infrastructure may be unviable, thus company is considering providing service at door step like the insurance industry through trained / certified personnel's.
Low cost car would also require low cost of maintenance and this possibly would get addressed by keeping cost of spare parts low and this could also impact the the insurance cost which is likely to be one third ($63 per year) as compared to the next cheapest car in India.
Nano is not competing with other cars or two wheelers, it is going to open up a whole new segment in India and India like countries and this would need a whole new approach to managing customer experience. Company would have to look at various distribution model to service markets in India and internationally and building loyalty.
Challenges - with increasing cost of crude oil (which could see over $150 to a barrel in 2 years), operating cost of this car could become unaffordable. The company should therefore start looking at alternate fuel for e.g. CNG, LPG, battery or methanol for long term sustenance.
One thing that pleases me most is that this has shown others a way, and many more innovations can be seen in days to come as corporates would question their current way of doing things. Constraints bring out the best and CK Prahalad calls this the process of Constrained Innovation.
]]>In response to my earlier post on automotive industry, a reader asked the above question.
I think, at a level of abstraction, the basic lean manufacturing principles of abolishing waste (muda) apply to Product Development as well. However manufacturing processes are largely unidirectional and recurring while Product Development processes are iterative and are to a certain extent unique for each new product. Hence the tools and methodologies for identifying waste and addressing it have to be different. Of late a number of good books have emerged on the topic of lean Product Development that illustrates some pertinent tools and methodologies. The Lean Enterprise Institute of MIT has also conducted copious research on the topic. So we can expect more excitement on this topic in the time to come.
On a related note, we are seeing the adoption of lean methodologies to software development emerge very quickly. Drawing a parallel between product development and software development, we can definitely see the trend increasing in the near future where components of lean will merge with existing development methodologies.
Another core area of merging of these principles is the adoption of agile methodologies to drive consistent improvement (Kaizen) and we believe all these streams will eventually merge in the near future.
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In the final post of the series above, I had painted a potential scenario wherein peer-to-peer lending sites find a way to securitize and sell the loans transacted; I was happy to read a recent report in the American Banker (read here – subscription may be required) which mentioned that Prosper has filed a registration with the Securities and Exchange Commission in the US to develop a system enabling people to resell the loans originated through its website.
While I am personally happy that a trend I had predicted has been vindicated by actions in the market, this piece of news is probably very timely, given the credit-market crisis that is unraveling around us. It reinforces the fact that the Internet is constantly driving more innovative and efficient ways for markets to exploit newer transaction opportunities. It also signals the fact that Internet based business models can build resilience in traditional markets.
Prosper’s strategic move may have a limited impact in the short term, given that it currently caters to niche, high cost, individual loans; however, larger financial institutions focused on retail lending need to watch developments in this area very carefully!
]]>We have read numerous news-articles on the efforts by the major manufacturers to launch hybrid cars over the past couple of years. I am aware of a few models from Toyota that have hit the roads and seem to have found a strong 'green' franchise. General Motors, the largest car manufacturer worldwide (yet, with Toyota nipping at its heels!), has announced grand plans to launch an 'unplug-and-drive' electric hybrid, aptly called the Volt.
]]> I have tremendous respect for the Global automobile majors, despite the plight that some of them are in today, especially in the US context. However, my strong belief is that the next major innovation in the industry is not going to happen out of Detroit or Tokyo. Not even in Pune or Mumbai, where for example, Tata Motors is planning a 'One lakh Rupees' car for the masses (approximately $2500 and rising, at today’s Rupee- Dollar parity!) and is aggressively bidding for the crown jewels of Ford Motor’s portfolio (Jaguar and Land Rover). The next big innovation in the automobile industry is waiting to happen out of Silicon Valley, California!I read a recent report in the Wall Street Journal (Read here - subscription may be required) about a ‘just-resigned’ technology executive from SAP-America, Shai Agassi, evincing interest in the technology for hybrid car batteries, the power horses which are at the heart of any electric automobile. This article caps a raft of news that I have been seeing and reading about Silicon Valley’s storied venture capitalists like Vinod Khosla investing in such greener technologies.
What has caught the attention of such hard nosed tech-investors and executives, when, arguably, the closest contact they may have had with the industry during their lucrative careers was probably a handful of visits to the luxury car dealerships that dot Silicon Valley?!
I think that these über-entrepreneurs have spotted an opportunity to innovate and commercialize a complex and expensive technology component; they are leveraging their experiences in the Google and Apple world to the more conventional automobile industry. And I do think they will ultimately succeed, given (as I have often argued in my earlier blogs here) that innovation is not just about purist technology inventions, but more about the strategy to build robust business models to commercialize such inventions.
All of us who use laptops understand the frustrations of battery life; I for one cannot understand how the impact of Moore’s Law has largely bypassed batteries that power everything from the ubiquitous laptop to next generation mp3 players and cellphones! I read somewhere that the battery stack required to power an uninterrupted 200 mile ride on a mid size car would probably end up costing more than all the other components of the car put together! Not to mention the space and the cooling capacity it would demand! It is precisely in such a situation that we need the largely inbred automobile industry to take a leaf out of other industries and find out-of-the-box solutions through business model innovations.
In the report in the Wall Street Journal I alluded to above, Shai Agassi , who was till recently a top ranking executive with SAP in the US, talks about a strategy to ‘unbundle’ the batteries from the car itself. The consumer can buy a car and rent the batteries required from another agency which would set up a network of battery recharging stations. Such an agency or entity would make the investment in innovation required to develop newer and hopefully, superior car battery technologies and derive payback through innovative, ‘pay-as-you-go’ revenue models.
We all know how financial innovation has made ownership of cars so affordable to consumers; extending that concept to leasing or renting hi-tech batteries would unleash more creativity and, in my opinion drive faster adoption of relatively new or unproven technologies. Further, unlike a car lease or a mortgage payment, one cannot drive the vehicle if the batteries are not charged, which creates an automatic incentive for the owner or driver, not to default, while adjusting travel needs to the money one wants to expend!
But wait a moment – why is this concept sounding so creative and cool to me? One always paid for Gas (Petrol) to refuel one’s cars, based on how much we drive, right? So what’s the big deal here?
The big deal is the fact that someone is thinking hard on how to unbundle key, critical components in an automobile and assign different ownership (and hence, risk-reward-payback) models to such components! Today it is for batteries, tomorrow it could be for say, an innovative internal combustion technology engine that fires up on a Gas-substitute. The possibilities are enormous and it requires people from outside the traditional four walls of an industry to come up with such innovations! I am keen to hear from you all on what you think of this, while I go and take a test drive on one of those hybrid cars!
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