bizzXceleration: Performance, Value and Profit

Innovation: Practices, Status and Concepts

Cuts Are Here to Stay, Companies Say Many companies that have cut jobs, pay and benefits during the recession may not be quick to restore them. According to a new survey, 52% of companies expect to employ fewer people in three to five years than they did before the recession began. The survey of 179 companies was conducted this month by consulting firm Watson Wyatt Worldwide Inc. Among employers who have cut salaries, 55% expect to restore the cuts in the next year. But 20% expect the cuts to be permanent. Of employers who have increased employee contributions to health-care premiums, 46% don't plan to reverse the increases. Of all survey respondents, 73% said they expect employees to shoulder more of the cost of health care than before the recession began. Nearly half of the employers who have cut their contributions to retirement plans expect to reinstate them in the next year. The remainder plan to restore the contributions after that, expect the cut to be permanent, or aren't sure. "We're not going to go back to the status quo," says Laurie Bienstock, national director of Watson Wyatt's strategic-rewards practice.

Why Business Plans Don’t Deliver Truth be told, most business plans fail to make much impression on potential investors. Most aren’t even read in full. Their shortcomings tend to be obvious even in a two-page executive summary, largely because they are written before enough real work has been done to create a solid foundation. Five oh-so-common varieties of plans that go quickly into the trash without further consideration. To help budding entrepreneurs avoid these traps, I also identified the three key elements that go into a successful business plan: a logical statement of a problem and its solution; a battery of cold, hard evidence; and candor about the risks, gaps and other assumptions that might be proved wrong. 1) In this kind of plan, the writer is smitten with the elegance of his or her technology. The plan begins not with the identification of a customer problem to resolve, but with a detailed explanation of how the technology works, why it is cutting-edge or state-of-the-art, and how it is better, faster and cheaper than current solutions. 2) This gambit rests its case on a plethora of secondary data to show how large and fast-growing a market is. The plan then makes a heroic leap and assumes that the new venture will grab X percent of that market—it could be 1%, 10%, 30% or whatever. 3) Of our five fundamentally flawed business plans, this one is perhaps the most difficult to spot. Such business plans often contain detailed spreadsheets showing why the numbers would work. That’s why these kinds of plans are difficult to spot—the numbers look like they work. 4) Investors won’t be snowed by top-tier diplomas or past employment with a leading company. Investors care first about the main challenges of the industry in question, and whether the proposed team has hands-on experience tackling those challenges. 5) The most common type of business plan, and the one that goes most quickly into the trash, is the one in which the writer can’t find anything but good things to say about the opportunity and plans to pursue it. Investors know that in the real world most opportunities, even good ones, have some weaknesses. 

Is Innovation Too Costly in Hard Times? Not that long ago, innovation was a must-do priority for business. Now research and development might seem more like vacation homes and new cars—luxuries that will have to wait for better times. "Innovation is an easy target," says Vijay Govindarajan, a professor at Dartmouth's Tuck School of Business. "R&D dollars by definition lead to uncertain outcomes. Companies don't want failure during difficult times." In an annual survey of top executives by Boston Consulting Group (BCG), which provides the foundation of BusinessWeek's 25 Most Innovative Companies list, more respondents said that innovation spending will be flat or down than since the ranking began in 2005. On the other hand, after focusing on shorter-term, lower-risk projects, a majority said they're satisfied with their returns on innovation investments. But recession and market meltdown aside, many of the corporations on the 2009 ranking are finding ways to forge ahead. Perennial top vote-getters shouldn't take their positions for granted either. Apple (AAPL), which has always held the survey's top position, had 33% fewer votes this year than in 2008, while Google (GOOG), consistently the list's No. 2, had 31% fewer. Why? Wrote one respondent of Apple: "Their products are improvements on previous technology. Their execution is flawless, but they are not necessarily innovative." Another respondent had the same criticism of Google: "Resting on past glory (search). Spending a lot on new things but no new breakthroughs." In contrast, Jeffrey R. Immelt, CEO of recently battered General Electric (GE) (No. 17), nominates Southwest Airlines (LUV) (No. 45) as the most innovative company in the world. "They are always trying new ideas," he says. Risky? Of course. But success doesn't come any other way.

• Slide Show: Innovation Investments in 2009
• Interactive Table: The 50 Most Innovative Companies
• CEOs' Picks: Most Innovative Companies
• Slide Show: The World's 25 Unsung Innovative Companies

The Failed Promise of Innovation in the U.S. "We live in an era of rapid innovation." I'm sure you've heard that phrase, or some variant, over and over again. The evidence appears to be all around us: Google (GOOG), Facebook, Twitter, smartphones, flat-screen televisions, the Internet itself. But what if the conventional wisdom is wrong? What if outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted? And if that's true, is there any reason to expect the next decade to be any better? These are not comfortable questions in the U.S. Pride in America's innovative spirit is one of the few things that both Democrats and Republicans—from Bill Clinton to George W. Bush to Barack Obama—share. But there's growing evidence that the innovation shortfall of the past decade is not only real but may also have contributed to today's financial crisis. With the hindsight of a decade, one thing is abundantly clear: The commercial impact of most of those breakthroughs fell far short of expectations—not just in the U.S. but around the world. No gene therapy has yet been approved for sale in the U.S. Rural dwellers can get satellite Internet, but it's far slower, with longer lag times, than the ambitious satellite services that were being developed a decade ago. The economics of alternative energy haven't changed much. And while the biotech industry has continued to grow and produce important drugs—such as Avastin and Gleevec, which are used to fight cancer—the gains in health as a whole have been disappointing, given the enormous sums invested in research. As Gary P. Pisano, a Harvard Business School expert on the biotech business, observes: "It was a much harder road commercially than anyone believed." If the reality of innovation was less than the perception, that helps explain why America's apparent boom was built on borrowing. The information technology revolution is worth cheering about, but it isn't sufficient by itself to sustain strong growth—especially since much of the actual production of tech gear shifted to Asia. With far fewer breakthrough products than expected, Americans had little new to sell to the rest of the world.

• Slide Show: A Decade of Disappointments
• Plus: Growth: Why the Stats Are Misleading

Preparing for the Recovery  In Dr. Govindarajan’s three-box framework, Box One involves managing the present—for example, improving the efficiency of today’s businesses. Box Two involves selectively forgetting the past. And Box Three? That’s about creating the future. Often, Dr. Govindarajan maintains, companies spend too much of their time managing Box One—the present—and think that’s strategy. Instead, he argues, companies need to spend more time and energy on thinking about Box Two and Box Three. In the current environment, the tendency for companies is to focus on efficiency and cost control—what I call “Box One” thinking, which is about managing the present. That’s inevitable because, for many companies, sales revenue has dropped by 50%, 60% or 70%. When your sales drop by 70% and you’ve got to maintain margins, you’ve got to cut costs. However, as a response to the economic crisis, many companies focus almost exclusively on Box One. I think this is wrong. Box Two and Box Three are critical despite these tough times. You see, there are three things that stand out about recessions. One is: Expansion always follows recession—and the expansion lasts longer and is more robust than the recession. The second point is that a recession fundamentally changes the competitive landscape in most industries. There are new winners and new losers. That leads to the third point, which is: Focus on the future and play offense while also trying to control costs and play defense. The best time to prepare for expansion is during a recession, because during a recession, assets are cheaper and talent is cheaper and more available. So you cannot lose sight of what you have to do in the long term.

Playing Well With Others Why can’t marketing and research and development play nice? Both functions are essential to developing successful new products. But the two departments don’t get along nearly as well as senior management thinks. How big is the gap? Huge. According to a survey we conducted, some 69% of senior managers described relations between marketing and R&D as collegial, but only 34% of mid-level managers saw the relationship that way. When we asked staff in each department what they thought about the staff in the other, the comments were even more revealing. R&D employees complained that marketers give them poor data, that the marketing department is too insistent about certain product features or benefits, and that marketers are mainly useful in developing launch plans rather than in actually coming up with new products. Marketing, meanwhile, had its own beefs: R&D doesn’t include marketers early enough in the product-development process; R&D doesn’t understand marketing, or what it brings to the process; R&D takes the credit when a product succeeds, and blames marketing if a product doesn’t sell. Such complaints are hallmarks of a dysfunctional product-development process. Both marketing and R&D have indispensable roles to play, but neither can reach its full potential without the other. Companies where such divides exist are more likely to miss out on the kinds of breakthrough products and market-research discoveries that can drive growth and profits for years.

Debunking Innovation`s Buzz The buzz around innovation is inescapable. It’s impossible today to open a trade journal or attend a conference without hearing about innovation’s importance. The problem is that too many CIOs view innovation as a kind of standalone activity that happens in the dark recesses of some R&D laboratory, while too many others view it as some type of technology to be deployed. You can almost hear a CIO calling his or her local services company and placing an order for innovation as if it were some shrink-wrapped product sitting on a shelf. Innovation isn’t some sort of mystical silver bullet that will solve all of our problems. Nor is it some new technology that we can buy and implement. Innovation is about creatively leveraging the tools and processes at your disposal to drive business value. Another concern is that people don’t understand that there is a certain culture required to successfully innovate. How many organizations in the current economic climate are open to trying things that may “fail”? To drive innovation, you must be open to the reality that a percentage of the things you try will not work out as hoped. As Edison quipped when asked about the creation of the light bulb, “I hadn’t failed. I just found 10,000 ways that won’t work.” Is your organization willing to stub its toe, or will it punish people who take educated risks that don’t pan out? A last issue in the current innovation rage is that people are struggling to figure out how they can innovate when they have to focus on other important initiatives, such as enabling process change and cutting budgets. This shows a limited view of innovation as something that requires additional funding and happens in a vacuum. Granted, some innovations do need seed capital. If so, work on reducing your operating costs to shake free a few dollars. In most cases, innovation requires less in financial capital and more in human thought equity. Don’t dedicate a team to driving innovation—make it the responsibility of everyone who works with you. Turn your people loose and let them come up with creative ideas. That is the true essence of innovation.

5 Ways Big Business Weathers the Economic Storm  Surviving this economic crisis is like going to see the latest Vin Diesel movie: Sure, it's bad, but believe it or not, others have seen worse. How do the grizzled vets get through the ordeal? They don't just sit there. Major companies such as Charles Schwab, Cisco, Corning, IBM, and Intel have all experienced crises more severe and life-threatening than our current one, making today's maelstrom for them more akin to Fast & Furious than, say, The Pacifier. Nothing creates fresh perspective like having stared into the abyss and living to tell the tale. No wonder, then, that each of these companies is approaching today's meltdown with distinctive strategies for not only surviving but also thriving. Intel and Corning are protecting their core advantages at all costs. Cisco, Intel, and Schwab view customer interaction and community as essential. IBM and Schwab are exhibiting a refreshing aggressiveness in chasing new business. Together, these five companies display a range of creative solutions that any business, fire-tested or not, should be applying right now. And unlike the Diesel, that's no joke.

Cases and Examples

Boeing and the 787: Not so dreamy ONLY a few days ago staff at Boeing were opening a ceremonial barrel of sake at the factory in Seattle where assembly was starting of the first 787 Dreamliner aircraft to be delivered to All Nippon Airways (ANA), the launch customer. At the ceremony Boeing affirmed that the virgin test flight of the world’s first big airliner to be made largely of composite materials, rather than aluminium, would take place by the end of June. But on Tuesday June 23rd Boeing’s share price fell by almost 9% when the company announced that because of structural flaws the test flight would be delayed. Boeing said it would take weeks before a further date could be set.The worrying things about the latest delay are that it comes so late in the process of development and that it relates to stresses where the wings join the fuselage. The stresses appeared in routine testing of wing flexibility. The wings are made in Japan and the fuselage comes mostly from Italy, to be pinned together in Seattle, thus the scope for confusion is immense. All new aircraft face delays as they become technically more complex and as manufacturing methods change in search of greater efficiency. Airbus's A380 super-jumbo was severely delayed mainly because of wiring problems. At first Boeing seemed to think that it had a quick fix for its latest problem—which would have limited the aircraft’s ability to manoeuvre—but subsequently the firm decided to postpone test flying until a more comprehensive solution is found. Boeing has pushed innovation in both technology and manufacturing to the limit, with its choice of a structure made of carbon fibre reinforced with resin and its decision to outsource much of the aircraft’s construction to distant partners. Earlier delays to the 787 were already turning the production of the Dreamliner into an anxious experience. Now it is becoming a nightmare. Getting the global chain of various suppliers to run smoothly has been a difficult task, as parts failed to arrive in a fit state in Seattle for final assembly.

Pressure Mounts From Boeing Buyers

Sony: Lost in transformation Sony's woes, especially since the global economic crisis rattled Japan, have led to his staying here 11 of the year's first 14 weeks -- a situation compounded by his hospitalization over the Christmas holidays with an intestinal malady. But he's here because, he says, he finally has his arms wrapped around the Japanese leviathan, and he thinks he has a clear shot -- perhaps his final one -- at remaking Sony (SNE) by transforming its culture, elevating new leadership, and finding new ways to exploit its technology and content. Says William Drewry, a longtime Sony follower who now heads media investments for Diamond Castle, a private equity firm: "This probably is going to be his last chance to run this company back to the top of the mountain." It's a daunting task. Sony's stumbles in sectors it once dominated (Apple (AAPL, Fortune 500) is No. 1 by a large margin in portable music players, and Microsoft (MSFT, Fortune 500) and Nintendo have taken swaths of share in gaming consoles) are old news by now, but upstart competitors continue to gnaw away at the Japanese giant. In just two years a startup called Pure Digital (now owned by Cisco (CSCO, Fortune 500)) has grabbed some 17% of the video recorder market with its easy-to-use, pocket-size Flip. Sony debuted an e-reader in 2006, but bookseller Amazon (AMZN, Fortune 500) swooped in two years later with its Kindle and has won consumers and acclaim largely because it boasted a feature the Sony Reader lacked: a wireless connection for downloading books, newspapers, and magazines. The culprit in nearly every case has been Sony's tradition-bound mentality, one that remained too focused on building excellent analog machines in an increasingly digital world. And though Stringer has been pushing for transformation since his first days in the top job, by his own admission he has been hamstrung by the management culture in Sony's home market and the repercussions of bad decisions made years ago that still haunt the company. It took the global financial meltdown for the notably cheery Sir Howard to finally decide there would be no more -- or at least a little less -- Mr. Nice Guy. In its last fiscal year Sony swung from a record profit to a loss of $1 billion on revenue of $79 billion, while cash flow in its main businesses whipsawed from $5 billion to minus $3 billion. Some of the blame for Sony's annual loss, its first in a decade, can be attributed to the economy and the rising Japanese yen. But huge Sony businesses like TVs -- where new Bravia models have sold well against those of rivals like Samsung -- have also bled red ink because of high manufacturing costs and commoditizing retail prices. (One of the bad decisions was to bet against the LCD display format for flat panels -- whoops!)

P&G Looks Beyond Premium Goods At an investors conference Thursday, P&G Chief Executive A.G. Lafley issued a sharply lower-than-expected earnings forecast for the Cincinnati company's 2010 fiscal year, which begins July 1. Outlining P&G's strategies to bolster sales in a difficult economic climate, Mr. Lafley said that every business at P&G is working to reach more consumers by widening the price range of its products. He cited the recent success of the company's bargain-priced Gain detergent and Luvs diapers. In recent quarters, both products have outpaced the sales gains of their premium-priced sister brands, Tide and Pampers.

As the recession wears on, cash-strapped shoppers are opting for more-affordable household goods, including store brands. P&G's new willingness to invest in developing more lower-priced products suggests it expects this price sensitivity to outlive the current downturn. "You have to see reality as it is," Mr. Lafley told investors. "In every recession there are hosts of compensating consumer behaviors as they manage a more modest budget. We have to expand our portfolios to serve the needs of those consumers. I think a lot of that is going to last."

Wal-Mart Moves Upmarket  Rivals are struggling to stanch losses while Wal-Mart's U.S. same-store sales grew 5% in April. More than a quarter of Wal-Mart's sales increase has come from new shoppers, more than half of whom have household incomes of at least $50,000. Wal-Mart execs say that higher-income group spends an average of 40% more per visit than the typical shopper. "Wal-Mart is becoming increasingly relevant to a growing proportion of households," says William Blair analyst Mark Miller. As Wal-Mart's U.S. marketing chief Stephen F. Quinn puts it: "We are being reassessed." The question is whether Duke can hold on to that more affluent demographic once the economy improves. Wal-Mart's reputation for humdrum goods and aggressive labor tactics has made it tough for the chain to gain a following among wealthier customers. To help keep them, Duke is expanding the presence of brands such as Dell (DELL) and Apple, putting pressure on manufacturers to advertise more in stores, and aggressively ramping up an initiative called Project Impact. The effort's goal: to remodel most of the chain's 3,600 U.S. stores (it has 7,900 worldwide) and make them more inviting. Duke is spending $1.6 billion to upgrade 600 stores this year, on top of 300 that were recently redone. He is also continuing a push to reduce the number of items in stores, which means less clutter but less variety for customers. And despite Wal-Mart's growth, he has laid off 800 staff at the Bentonville (Ark.) headquarters and slashed other costs to keep the chain lean. Such moves suggest Duke is taking a bolder role than expected by industry experts, who paint him as a caretaker CEO.

Slide Show: Wal-Mart's World

Wal-Mart looks for expansion overseas

Wal-Mart Exports Big-Box Concept to India

Wal-Mart Moving Upscale (2005)

Retailers emulate Wal-Mart's focus on necessities

No Need to Shop Around

In Recession, Strategy Shifts for Big Chains Shopping as we know it is on the brink of major change. Hammered by the recession, some of the nation’s biggest retailers are seizing the moment to reinvent their business strategies. And the impact will mean both sweeping changes in the merchandise on their shelves and subtler alterations, like how many pantyhose to keep in stock. High-end stores like Neiman Marcus, Saks and Coach will offer more midpriced merchandise. Many chains, including Wal-Mart, will carry less inventory and fewer brands. The likes of Sears and J. C. Penney will put self-service computers in stores so customers can browse collections or buy out-of-stock items. And retailers of all stripes will offer more exclusive merchandise and more attentive customer service. One of the biggest changes consumers are likely to see is greater personalization and regionalization of merchandise. An initiative known as “My Macy’s” requires the retailer’s merchandisers and other planners to go into stores each week to learn from the sales staff — who keep logs at the cash registers — what shoppers are requesting, snapping up or complaining about. For instance, when strapless and bare-shouldered dresses were selling well everywhere except Salt Lake City and Pittsburgh, Macy’s employees in those stores knew the problem was that their customers wanted more modest dresses. So they passed that information on to the merchandisers. Out went the strapless dresses; in came dresses with cap sleeves. And sales went from lackluster to robust. Under the new system it will not be unusual for a local Macy’s to stock the merchandise customers request, be it wide-width shoes or Sean John suits, and for those offerings to be different from the ones in a Macy’s store 100 miles away. “I think what Macy’s is embarking on is perhaps the largest transformation in our company in a couple of decades,” said Terry J. Lundgren, president and chief executive. The Macy’s change is just one example of a wide range of initiatives retailers are pursuing as they struggle to cope with an economy where sales are lower than they were just a few years ago. Despite all the new technology, consumers will be getting more attention from sales staff. During the last few years, retailers did not have to work hard to separate consumers from their dollars. But those days are over. More middle-market chains are striving for Nordstrom-quality service to win customers. Even Home Depot has adopted its “most extensive customer service training ever,” its chairman and chief executive, Frank Blake, told investors and retailing analysts last week.

Pixar's Small Wonder There's a brief scene in the back half of Pixar's Up in which 8-year-old Russell recalls how, years before, his estranged father used to take him out for ice cream. Butter Brickle was Dad's favorite flavor, Russell's was chocolate, and the pair would sit together, slurping their melting treats and counting passing red and blue cars. "That might sound boring," says Russell, pink-cheeked with embarrassment. "But I think the boring stuff is the stuff I remember most." If anything sums Pixar's modus operandi, it's loving the boring stuff. Finding salvation rather than the Devil in the details is one of the main reasons for the studio's artistic (53 combined Oscar nominations and wins) and commercial (nearly $5 billion in worldwide box-office gross) successes. Up, the studio's 10th full-length film, clocks in at a zippy 86 minutes and, like the nine before it, will rise or fall on the strength of its smallest moments. The guiding principle is the same across all Pixar films: "Wonder and interest doesn't have to come out of pizzazz and spectacle and huge idea. … I always knew that the power came from the small, and not from the big," Wall-E director Andrew Stanton said earlier this year. "[Making Wall-E] got me thinking about, and this may sound commercial, but how good Spielberg was at making moments of the littlest things." That minor details drive major plot points doesn't happen without meticulous curation, especially in the opening, silent montages of both Wall-E and Up. "It's not letting any stone be unturned," Stanton said about Wall-E. "It wasn't a random choice to just pick this. It's a conversation, like, 'Why are we picking this, why are we using this object, why are we in this set?'

·          Pixar, the Anti-Disney

·          Q&A: 'Up' Producer Jonas Rivera

·          An Interview With Andrew Stanton

Acer’s Everywhere. How Did That Happen? To reach the No. 3 spot in the global computer business, Acer went through a corporate reinvention that offers fodder for business-school case studies. For close to 15 years, Acer suffered from a split personality. One part of the company built computers for other PC sellers that would then put their labels on the machines. Another part of Acer sold very similar computers under the company’s own brand. The arrangement created obvious conflicts, Acer executives say, with the group responsible for the Acer-branded products competing against the customers of the manufacturing arm. In 2000, Acer began cleaving off its manufacturing division. A year later it formed an independent company called Wistron to handle these operations. A smaller, nimbler Acer emerged, outfitted with a new logo and lofty, global aspirations. With a clean slate, Acer made what looked like counterintuitive decisions. It decided to focus on laptops for consumers, and to sell them through partners and retailers, avoiding any kind of direct sales. This approach placed Acer on a distinctly opposite path from Dell, which was the PC industry’s major success story in 2000. Dell had surged past rivals like Compaq, I.B.M. and H.P. through an ultra-lean direct sales model that hinged to a large degree on shipping desktop computers to big businesses. In the subsequent years, however, computer retailing shifted in favor of Acer. Consumers now buy more computers than businesses do, and these buyers tend to prefer laptops to desktops. The advantages that Dell once gained by mixing and matching components for customers at its factories have faded as consumers have flocked to stores to buy preconfigured computers. In the meantime, Acer has snatched the mantle of quick-moving, lean operator from Dell. Be it wireless technology or super-thin laptops with a long battery life, Acer often ships computers with new features before any other large PC maker. And when it spots a hot trend started by another company — netbooks, for instance, were the brainchild of Asustek, a fellow Taiwanese company — Acer follows in force, bombarding the market with low-cost products. Paul S. Otellini, the chief executive of Intel, credits Acer with embracing its underdog role and taking big risks to disrupt the status quo. “They have done a spectacular job,” he says.

The Challenger from Taiwan