Lines and Queues

I remember reading this quote in a book:

"If McDonald's don't shorten their lines (queues); their customers will do it for them."

So I went to the local post office here in Taiwan to collect a registered letter. In I went, and there was no queue. "Great. I'll be out of here in no time." The man behind the counter had different ideas, though: I was going to have to wait until he was finished what he was doing before he would serve me. In a word, the service sucks at this state-owned organization. My father used to say, "This place needs a rocket." I now totally understand what he meant by this.

The same kind of behaviour used to happen in the banks here in Taiwan before the government opened the local market to foreign banks. Boom! An instant sense of urgency followed by a frenzy of innovations. And thanks to this, everybody gets served quicker than ever.

Some of the local banks here have decided that mergers and acquisitions will help them avoid the increased competition, which has also resulted in pickier customers.

Problem is, mergers have a terrible track record. And which boss will take a back seat in the newly merged bank? For one of them, it's a step down.

Does a lack of oil drive innovation?

You'll often find that countries with small, ageing populations and little in the way of natural resources, such as oil and natural gas, spend a higher portion of their GDP on R&D.

Here are two articles concerning innovation at the national level: One on Finland, the other on Singapore.

Innovation is . . .

Throughout the literature on innovation you will find reference to factors (the usual suspects) that help companies become more innovative. These include such things as: reward and recognition mechanisms; flat corporate structures; a lack of fear; respect for your peers (i.e. he or she might know more than you do); real support from top management; free resources (money and time); an idea collecting system etc. etc.

Assuming that, for the most part, most progress is the result of numerous incremental improvements over time in all areas of the business; what about this factor? How do you create a sense of it in the work place? When the default is not to bother, how do you turn things around?

Skype Proves Popular in Taiwan

Interesting article today in the Taipei Times about Skype.

Taiwan has the fastest penetration rate anywhere in the world for Skype. It also has the second-largest number of users in the world, with the United States having the largest number of users.

Acer Interview

Today's DigiTimes, a publication that covers IT news, has an interview with JT Wang, Acer chairman. Acer manufatures and sells PCs and various other products, and is arguably Taiwan's most-famous brand. The interview goes into areas such as the various channel strategies that PC sellers can use around the world.

The interview is interesting because it highlights the importance of channel innovation as opposed to just "the product." The more I think about innovation, the more I believe that innovation should occur everywhere in an organization, but before this can happen, you had better make sure that staff are genuinely motivated. Achieving this ideal is far from easy of course.

More on Network Externalities

I thought I'd copy this from some work I've been doing. It explains what I meant by "network externalities" in the previous post.

Network externalities refers to products for which the utility that a user derives from consumption of the good increases with the number of other agents consuming the good (Katz and Shapiro, 1985; Tirole, 1988). These can be positive, in the case of online auction sites; computer software; phones, faxes, and video games; or negative in the case of public road systems. These network externalities can be direct (physical) as in the case of two-way communications networks (Rohlfs, 1974); or indirect as in the case of software and auto service (Katz and Shapiro, 1985, 1994; Church and Ghandal, 1992b). Liebowitz and Margolis (1995b) have commented that the effects of network externalities are minor for most industries.

Whether this still holds true in 2005 is debatable.

Intellectual Property Rights v. Network Externalities

You can't proceed very far in any discussion on innovation without the issue of intellectual property rights raising its head. Today's Daily Times from Pakistan has a very interesting article from Joseph E. Stiglitz, a Nobel laureate in economics.

Stiglitz cites Microsoft as an example of how it can be very difficult to "dislodge" incumbent firms once they have established a "monopoly" position, despite innovators nipping at their heels. I would say that the Microsoft case is an exception, and has more to do with the the effects of network externalities than innovation.

Everybody picks on Microsoft! How come you never hear about how Microsoft struggled with its X-Box product launch, partly because of network externalities in the gaming industry? Of course, it was Sony that was difficult to "dislodge" here.

For most industries, where network externalities don't exist, there are always areas left unattended by incumbents.

More Imitation

This is a photo, taken in a store in Taiwan, of a computer speaker system. The brand is "Yamada" and looks suspiciously like an X-Box.

Freakonomics

Professor Steven Levitt, author of Freakonomics, a book that takes an unconventional look at a variety of issues that affect us, directly and indirectly, is interviewed by Carrie Gracie from the BBC.

Successful innovation requires deep "market" insight, both inside and outside the firm. In the interview, Professor Levitt discusses the positive link between such things as legalized abortion and falling crime rates. This type of systems thinking is useful for trying to better understand these seemingly irrational markets.

Free Knowledge

If you are interested in innovation management and other business-related content, the MIT Web site is worth checking out (there's a permanent link on the right side-bar of this blog). Can you believe that you can sit at home and watch/listen to lectures by Clayton Christensen, James Utterback, and Rebecca Henderson for free?

I've watched these lectures dozens of times, which I wouldn't be able to do if it was a traditional, campus-based lecture, and found them to be a pleasant change from reading just books and journals. It's also great to see the faces behind the books. One of the most interesting lectures is the one about the ice industry by James Utterback. One of the most valuable takeaways for me from this lecture was Utterback's very important, and easy-to-miss statement that "functions are relatively stable" across time.

This is a must see-lecture!

Skype in Taiwan

Skype is in Taiwan, and I'm sure its presence isn't going down too well with the folks at Chung-Hua Telecom, Taiwan's part state-owned telecommunications provider. Chung-Hua's staff, who had it so good for decades and charged the living daylights out of its customers, are going on strike in protest over government plans for further privatisation.

You'll often hear people talk about Skype: "It's not that good. It's not as clear as the phone." Sure, that is true, but what they are forgetting is that Skype is competing against non-consumption: many of the people who use Skype would probably not have made any phone call at all, using instead e-mail, fax, or a letter.

It is Skype's relatively poor technical performance that makes it such a danger to Chung-Hua. Chung-Hua will be motivated to ignore Skype, thinking that they can concentrate on more-demanding customers, such as businesses, and move upmarket.

One thing's for sure, the technology that powers Skype will only get better, and when this happens, Skype will really start to eat into Chung-Hua's revenues. It is going too far to say that companies like Skype will "destroy" telecoms providers (just like CDs haven't "destroyed" vinyl), but they will certainly change the way they currently operate.

Exploiting Asymmetries of Motivation

Clayton Christensen recommends looking for less obvious channel partners who will be motivated to sell your product; and avoid the established, more obvious distributers, who won't. What he is talking about here is basically channel innovation.

One case that Christensen uses to illustrate this idea is Honda's entry into the United States motorcycle market. At that time, Harley-Davidson dealers were not interested in selling the Honda Super Cub (a small, cheap motorcycle) -- partly because their cost base forced the dealers to chase the big margins. They were not motivated to sell it.

Power equipment and sporting goods retailers, on the other hand, were very interested in selling the Super Cub -- a motorcycle provided them with relatively high margins, compared to what they were currently selling. These retailers were very motivated to sell the Honda Super Cub.

You can guess who they chose as a channel partner.

In Taiwan, there are many established convenience stores, like 7-Eleven, part of Taiwan's Uni-President Group. This chain, if I were trying to sell a product in Taiwan or China, would be one that I would avoid like the plague since they have no motivation to sell my products. They would also squeeze me dry on price.

This is one of the key questions you should ask when looking to sell a product into China, Taiwan, South Korea, or any other new country-market: Will this distributor really be motivated to sell my product? If the answer is no (and for most established channels it will be), you have to look for less obvious possibilities.

Here's an interesting article about Honda.

India: The New Golden Boy

India's attractiveness as a place to do business has been in the news a lot recently. The recent floods have brought the country's infrastructure problems to the fore, though:

"Although India's economy has grown since the 1990s more quickly than any other major economy apart from China's, the government is aware of its Achilles' heel: crumbling roads, stretched utilities and inadequate transportation networks."

Location of R&D Centers

If you are a Taiwanese bike manufacturer and you want to conduct R&D, do you locate your R&D center in Taiwan, China, or Holland?

If you are a U.S. coffee chain, in which country-markets do you look for ideas as part of your innovation process?

If you are a budding electronica music producer, do you move to London or set up shop in Indonesia?

Roberts (1995, p. 55) presents a chart that shows the percentage of total R&D activities in Japanese, North American, and European firms that occurs outside the home country (foreign R&D). In 1995, European firms had the highest percentage of R&D occcuring outside the home nation (over 30% took place overseas). Followed by the United States at about 15%, then Japan at less than 10%. Quite a difference. The chart also shows that all these countries are increasing the percentage of R&D activities that occurs outside the home nation, with Japan showing the biggest increase.

Business Model Innovation

What a coincidence! The last post was about the publishing industry, and today the BBC has an article on a Web site, Lulu. This business offers an alternative way for writers to have their books published.