Phil Hauck's TEC Blog

Sunday, March 21, 2010

A Great Innovation Process ...

Paul Lemens, Director
UWGB Institute for Entrepreneurship & Innovation
Business Assistance Center Presentation Mar. 16, 2010

The Innovation Process

Paul’s presentation went extensively into what innovation is all about, which we will cover below. However, these are his critical insights:

• Innovation is increasing the utility of the product/service so as to create higher value for the user and economic rewards for the provider.
• Innovation can change the marketplace, creating new winners ... and losers.
• All Value Starts with the End User. So, start there. If you lose there, nothing else matters ... so improve there, and protect there. If the End User is solid, innovation at other places in the Value Chain (from raw material to installation) is positive.
• It can be Incremental/Sustaining or Disruptive.
Incremental/Sustaining is Improvement of the existing offering, or Evolution of the existing offering to a new level.
Disruptive is an Invention (something new), or a Game Changer, transforming how the consumer or company does things.

• To be Disruptive requires ...
New Knowledge and Categories, and a Broader Context and Understanding. Think Broadly!
Worse product performance ... KEY. Most innovations create new opportunities at the lower end of the marketplace where there are lots of users and little technology. If you’re the market leader, proactively protect the bottom end.
Less expensive, smaller, simpler.
Almost always EASIER TO USE.
Appeals to a niche customer base.
Technology used is not an immediate threat (but will be!).

• The Process:
I. Get Smart ... Know the market thoroughly.
II. Understand the End User, those who will be the final buyer/user.
-- In addition, know thoroughly your customer (e.g., Walmart).
-- Know where the problems are.
III. Identify Opportunities. Needs. Are they big enough?
-- How to Uncover User Needs. Look at length at each of the Four elements of the Human Experience around use of the offering: Activities (Do?); Artifacts (With What?); Actors (Who?); Atmosphere (Where?).
IV. Brainstorm Solutions.
-- Identify problems/needs, and opportunities.
-- Stay away from product features; stay at the Benefit level.
V. Create Concepts ... continuing with the solutions/ideas from IV.
-- Draw pictures. -- Create a “war room.”
VI. Create Solutions and Refine.
-- Quick and dirty. -- 3-D Models. -- Involve users/customers.
VII. TELL THE STORY. “A day in the life ....” How will lives change, get easier?
-- Develop the Model.
VIII. Prototype.

Other Insights:
• Innovation is about People ... fulfilling user needs.
• Major innovations result in new Business Models.
• We are all born creative, but we “unlearn” as school teaches us science and math and logic.
• Think about the World. (What did you see: Globe? Map? Diverse Cultures? Environment?)

• Who invented the ubiquitous Fridge Packs for soda and beer we buy these days? (Alcoa!)
-- They did an ethnographic study of the life cycle of the product from beginning of creation thru delivery thru use and disposal. They looked for “Where are the inconveniences?” Where does usage slow down?
-- Coke increased sales 10%(!) by adjusting the packaging to usage, not from any change in the product itself.

Reaction to Job Creation ideas ...

The previous post, on Job Creation, was also printed in the Green Bay Press-Gazette. If a blog is about opinions, here's one. I received this reaction directly from a reader who's hot button I pressed. I liked the thoughtfulness(?) of my reaction that I sent to him. (He did sign his name, to his credit.)

His reaction:
"I read your op ed with great interest, then with great laughter, and then with disgust! Typical pro-business BS.
"You don't want business to pay taxes. You don't want business to be subject to any reasonable regulation. Thank you Wall Street and the banking industry.You don't want business to pay social security, unemployment, and health insurance costs. You want someone else to pick up the tab.You want grants, another name for handouts, You don't want business to have to pay for its own capital investments. It's no wonder this state is broke! From a workers perspective, when will business create jobs that pay enough to keep us off of assistance or having to work two and three of those great jobs?
"You want it all and you don't want any responsibility. You and your republican cronies are outright crazy!"

My reply:
Thank you for responding. I appreciate knowing how people are reacting, even though, as with you, you think it is off-base.
Might I respond, please?

From my perspective, I agree that it's "typical pro-business BS." But may I explain regarding several of your points.

1. Actually, I do want businesses to pay many taxes and fees. They should pay for the ones where they are getting services from government, such as sewer, water, trash pickup, as well as services they use from any other source.
Basically, all income that is created comes from a business providing a service or product that a customer values enough to pay more than it costs. That income goes to people to spend on themselves and their families, less the portion that government takes to provide government services (schools, streets, trash, sewer, water, Medicare reimbursements, Social Security payments, defense, enforcement of regulations, police, fire, etc., etc.). If a business has money left over after its costs (including paying down working capital principal and interest), it can invest it in new facilities (buildings, equipment) needed to expand. It can also pay more dollars out to employees or shareholders, which will then be taxed like other income to individuals.
My point is that people should be taxed based on their income levels (yes, progressive), not the job-creating business enterprise. The more dollars are left with a business after true operating expenses, the more that is available to be used to develop new products, do R&D, test, promote, sell and finally manufacture ... creating more jobs. Costs and prices can go lower, all else being equal, only when a business expands. If a business can't expand, its costs will only increase on average ... and it obviously not only won't add jobs, it will probably lose some.
In summary: Yes, there should be taxes on services they incur ... no others. Let as many dollars as possible stay with the enterprise so it can do what it is supposed to, which is to sell more and create jobs. Tax individuals.

2. On Regulations. Regulations are important. They are society's way of telling a business what it doesn't want that business to do, to provide its code of conduct. Plus, obviously, our ethical habits that we would apply anyway. So, yes, "reasonable regulations" are extremely important. Wall Street greed? Way out of proportion! Yes, either better regulations need to be put in place, and/or the ones in place have to be enforced. Probably both.

3. Businesses paying Social Security, Unemployment and Health Insurance costs. Social Security is a tax applied to people; the business simply pays it on the person's behalf. Unemployment: Debatable. Why should a business have to pay more for an employee it doesn't need? If society wants that person to have some income as a welfare payment, then it's part of government taxes. That's one view. Another is that businesses don't mind paying Unemployment at all. They can't use the person right now, but they have probably been very appreciated employees and the business leaders are happy to contribute to a fund the laid off employee can draw from. They are sorry the situation exists. Some Unemployment is important. Health Insurance costs? Yes, you're right. Personally, I don't think a business has any business paying health insurance costs. We wouldn't be in this fix if people knew what the actual costs have been. We would have fought back and corrected this problem we have now a long time ago. Third party payments don't work. Let's go back to where we pay our doctor directly, based on what we can afford. Health Care is not a Right; it is a Benefit to the extent we can afford it. The medical community wants income; they should only have what we can afford to compensate them. Needs a longer story.

4. Grants ... regarding training, I assume. I don't care whether a company has to pay for the training of its new employees to have entry-level skills (which are increasingly sophisticated, as you know ... to operate machine controls, CAD systems, etc.), or government does through the technical colleges. If a person comes to me with the skills I need, he gets hired. If he doesn't have the skills, it's debatable. Either way.

5. Capital investments? Of course a business should pay for its own capital investments. It does that through retaining income and borrowing. Unfortunately, if I invest $100,000 in a capital investment (building or new equipment), I can't deduct those dollars as expenses this year even though they are gone and no longer available to me. I can only deduct a portion of them based on how long the government tells me I have to depreciate or amortize the equipment. Accelerated depreciation would be good, allowing me to charge off those expenses faster and use the freed-up dollars for job-creation activities (see #1, above).

6. The state is broke? We have a State Senator, Rob Cowles, who keeps reminding us that when you commit to pay out dollars into the future, that creates a structure that is certain. Is there a certainty that a revenue stream will pay for them? If not, a "structural deficit" will occur. That's what we have ... lots of certain commitments, that don't flex based on available revenue. That's what's causing the state to be "broke." I'm not sure I understand your exact linkage of the state's deficit to how a business operates.

7. When will business create jobs that pay enough to keep us off assistance or having to work two and three of those great jobs? Good question. The world is becoming much more competitive, which drives prices down. Costs ultimately have to come down with them. Right now, we have lifestyles and "structural commitments" that are allowing virtually no savings capability for families. It's not a question of asking businesses to raise salaries based on revenue dollars they don't have. They can't do that. (It's just as bad as asking an insurance company to take on anyone regardless of "pre-existing conditions". Would I take on someone whom I KNOW will be more expensive than he/she is able to pay me?) It's more a question of figuring out how to live within the global conditions that are creating the top line restrictions. It's not "business as we have known" by any stretch.

8. I want it all and don't want any responsibility. Actually, I don't want very much. And I do try to take responsibility. I expect that you do, too. You cared enough to write.

9. Republican cronies. I'm not a Republican, but you're right, I do have Republican cronies. Democratic cronies, too. More and more Independent cronies, though.

We all have the same objectives, we just see different ways of trying to get there. It is all about people, not businesses ... but the capitalistic system we have, with all the required regulations to provide its morality, is the best the world has created to take care of people long-term. It requires A GREAT DEAL of responsibility, as you know. We haven't operated it very well in the past three decades or so, I would agree.

Regards, and best wishes in all that you are doing to make things better as well,

TEC members on Job Creation Ideas

As Congress and Madison recently looked at the economy and job creation at the urging of polls, they began to develop legislation that might propel job creation. I took this issue to my 30-or-so TEC members, who are the people who actually DO create the jobs, and asked them what "environment" they would like to help them begin growing again and creating jobs. Their thoughts follow. We sent it to our list of state and national politicians who represent us.

Job Creation Ideas
1. Put/keep as much money in people’s pockets as possible so that they can buy ... and provide an environment that stimulates them to buy. Don’t take our markets away!
• When people feel that tomorrow will be better than today, when the uncertainty about tomorrow is replaced by confidence, they will begin buying more goods made by our companies.

2. Eliminate all business taxes except usage taxes.
• The business is the “golden goose” whose efforts eventually create jobs. Taxes on businesses take dollars away that could be spent on job-creating efforts. The business of a business is to fulfill a customer need/want. They should not be impeded unnecessarily in doing that. Taxes should be paid by people, not the job-creating enterprise. (This includes taxing of inter-state services.)
• Dollars not used for taxes can be used for R&D, new product development, seeking new customers, increasing manufacturing capability ... and hiring new workers!
• Tax individuals ... not the job-creating entity.

3. Re-institute Accelerated Depreciation, which will incent capital expenditures funding expansion, increasing capacity and thus driving down prices. The Institute for Policy Innovation estimates every $1 of depreciation deductions generates $9 of output growth.

4. Insure a supply of trained workers ... by providing grants for hiring/training/re-training, or funding technical schools to do that training/re-training.

5. Invest in NEW Infrastructure ... infrastructure that is key to tomorrow’s competitiveness (broadband, etc.).

6. Reduce the costs of Regulation.
• Regulation is important ... it assures minimum standards. Regulation should be cost-justified against the benefits.
• Example: Eliminate multi-state duplication of licenses.

7. Corollary: Reduce/Don’t Increase the administrative and tax costs of having an employee.
• This is why it’s important to control rises in Health Insurance, Social Security, Medicare, and other societal benefits.

8. Corollary: Increase/Don’t Reduce the incentive to work.
• Insure it’s not more beneficial to collect Unemployment Compensation than to work for available wages. Keep a large differential between them.

9. Don’t play favorites. Keep the playing field level.
• Examples: Davis-Bacon, Employee “Free Choice” Act, etc.

10. Provide grants to incent basic research which might lead to development of patentable, commercializable ideas.

11. Stop creating uncertainty around interest rates, availability of capital, and costs of employing workers. This uncertainty results in postponed expansion efforts.
• Control interest rates at low levels and without volatility to reduce barriers to capital investment borrowing.

12. Foster globalization. Don’t impede it.
• All economics is about Comparative Advantage. Let everyone do what they do best, and let the buyer/user judge whether to buy/use or not.
• Many of America’s jobs depend on export business.

Tuesday, March 16, 2010

Moynihan on Culture/Society

"The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself."
-- Daniel Patrick Moynihan, U.S. Senator (D., NY) and intellectual, 1927-2003

Friday, March 12, 2010

How many bones do you have?

An adult has fewer bones than a baby. We start off life with 350 bones, but because bones fuse together during growth, we end up with only 206 as adults.
Taking care of your bones takes more than calcium. You need to perform weight-bearing exercises (not just elliptical or cycling) and an alkaline-rich diet full of vegetables and fruits. Avoid sodas and sugars, which rob your bones of calcium. You've only got 206, so take care of them.

Packers Leaders Discuss Strategy Process

Current Packer CEO Mark Murphy got introduced to goals and planning when he was a cornerback for the Washington Redskins.
“Joe Gibbs came in as our coach, and all of a sudden we had strategic goals for every function, metrics updated on a weekly basis, and they were posted everywhere. We had them for the entire team, for each team segment, and for the operating departments. The goals and metrics were on the walls for everyone to see.
“They showed where we wanted to be, and where we were at that moment. It all worked. I soon found out that we were all better as a result, and we were focused on the right stuff, and ultimately the same stuff. I think this approach is why Joe has been so successful not only as an NFL coach, but as a NASCAR owner.”

He made these remarks at a recent St. Norbert College Breakfast & Strategy presentation.

He came to the Packers after stints running the athletic programs at Colgate and Northwestern universities. “I knew when I came here that I, as the CEO, set the tone ... and for the Packers, especially, planning and accomplishing had to be a given. Betsy had already created a great culture that embraced strategic planning, which made my job easier.” Betsy is Betsy Mitchell, the Packers’ VP of Organizational/Staff Development.
“As a small market team, we’re especially vulnerable. We have to be very professional as an organization, making sure we uncover every profitable revenue stream we can. We have to innovate. We have to be focused on business development. We have to be good at extending our current initiatives.”
Today, the Packers have clearly stated and posted Values, Mission and Vision ... and five core objectives from which everyone takes direction. They’ve also defined what they call their True North, although it’s somewhat general at continually striving “for championships while being guided by our values in all endeavors with constant attention to protecting, enhancing, and maximizing the Green Bay Packers’ assets.”
“If you get the entire organization focused on a few goals, it makes getting to success easier. Day-to-day, week-to-week metrics give guidance. It helps get buy-in from employees, which is everything.
“We operate like any good business. We have a corporate board and an executive committee which oversee and approve what we’re doing, and with them we worry about out long-term viability.”

Mitchell is the driver of the planning process. “Earlier, we had departmental planning, but not full integration. Then, two years ago, we took two days of our top 14 people ... and figured out what we had to get to as an organization. That discussion took us to our True North definition, as well as the Core Values, Strategies and Initiatives to get there. We set our current five objectives, and post them all over the building.
“Everyone is linked by job, objective and purpose to one or more of the five. We do the Plan/Do/Check/React constantly.”
“We have forced people to have discussions about the broad objectives ... and the specific organizational initiatives. Then, we dissolved into teams and discuss how the team can contribute to each ... and then by individual.
“This year we’ve tied individual incentives to achieving the broad initiatives with emphasis on cooperation between functions.
“It’s key that Mark as CEO continually talks about them. What’s important is to keep them front and center.”