lower costs, better skills and/or access to knowledge
that can provide a source of differentiation. The aimis to establishmutually
beneficial relationships through which new products
and services can be developed. Let's first start with the suggestion
that DELL's death is imminent. To
quote Samuel Clemens, "the reports
of DELL's death have been greatly
exaggerated." The truth is they have
hit a lull right now in their market.
This is not because they have
deteriorated but because their
competition has done a very, very
good job of catching up. In fact, they have met most of DELL's costs and
service standards in the
marketplace. So, it's not so much
they got worse, but that you have to
give a great deal of credit to Hewlett-
Packard and Lenovo for having
substantially improved their
business models in the last couple
of years.
Second, to really understand the
forces of a personal computer
company you have to go a level
deeper and understand the very
different market segments in which
they compete. Long story short: all
of the profit margins in personal
computing isn't in selling
computers to you or me but selling
computers to large corporations.
They tend to buy more expensive
ones that have a higher profit
margin. It is the case that those
customers have been shifting with
their definition of what kind of
value they are looking for. They
used to buy on lowest unit price but
they are increasingly buying on
lowest life cycle price lowest cost
of ownership. And while DELL's
model was excellent at delivering
lowest selling price, it turns out HP
has been very innovative about
lowering the total cost of ownership.
Let me illustrate it in one simple
way: today DELL tends to continue
to buy many of its components on
the stock market. What that means
is that in a line of a single model of
computers you might have a
particular component that's sourced
from three different companies,
depending on who had the lowest
price that day.
It's a good way to achieve low price,
but if you're the buyer of that PC and
it breaks now you have the
challenge of identifying which
component in the computer needs
to get fixed. HP, which standardizes
on components much more, focuses
on the maintainability of the machine and has gotten the jump on
DELL, strategically.
Let's see how the story plays out. I
have nothing but the strongest
admiration for DELL's management
team and I have a feeling that they
will be back and they'll be back with
a tremendous amount of strength in
a fairly short amount of time. I also
happen to believe HP is a very
worthy competitor; so this might be
a marketplace in which both of
them, and Lenovo, end up
innovating a lot. The big winner will
be none of them; the big winner will
be the customer who is going to get
significantly improved value year
after year as they try to outdo each
other.
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In this age of increased
commoditization across many industries,
what is the best way forward for the
companies to be at the cutting edge on
the innovation front?
There are three components to stay
cutting edge on the innovation
front.
First and foremost, it means truly
getting in touch with the main
parameters of customer value so
that you cannot waste efforts
innovating on things that
fundamentally will not move the
market in your direction. I see a lot
of companies wasting as much as
30-40% of their resources precisely
that way.
The second thing that's
important to being productive in
innovation is having a methodology
that allows 50th percentile people to
perform at 90th percentile level as a
team. The methodology that we use,
for example, at GEN3 Partners,
focuses on root cause analysis. Our
methodology focuses on functional
analysis of how value is driven and
the ability to decompose it into the functional components that are
allowing you to achieve that level of
performance. That then leads to the
next thing which is how do I
innovate on that functional
structure to take it to a whole new
level. So, the second piece is to have
a structured, rigorous, analytical
methodology for innovation.
The third piece is about people. I'll
simply point out that we all
understand that as you go from a
50th to a 75th to a 90th percentile
person, there are accelerating
returns on their performance. There
is tremendous power in the
innovation space to having the best
people. However, we in the
innovation space have to realize
that there are three very different
kinds of experts. There are those
experts that we call "technologists."
These people, for example,
understand everything about a
pump or supply chain or a technical
component of the business. The
second kind of expert is what I call a
functional expert. Whereas, the
technologist expert might be an
expert about a pump, a functional
expert knows everything about how
to move a liquid. What it means is
that they understand a vast array of
different technologies that can
achieve the same function. They
perhaps know dramatically broad
technologies that can get you to the
same result, and they are constantly
scanning for new and different
technologies from other industries
that can do that.
The third expert is an innovation
expert. They may not be very
technically grounded or may not be
functional experts, but they
understand the process of
innovation. What I see in too many
organizations is that organizations
don't discriminate between these
three experts. They assume, often
incorrectly, that if you're technologically strong you're
probably an innovator.
So, the three components for getting
high performance is: identifying the
main parameters of value so that there's no wasted effort; building
methodology that is structured,
analytical and gives you
productivity improvement on how
you innovate and; focusing on your
people. It's not just about the best
and brightest, it's about
understanding what capabilities
they bring to the table and knowing
when to use their expertise.
