Category Archives: Innovation

Digital, Disruption, Innovation, New business

Refurbishing cars classified ads

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I had the opportunity last week to talk with executives in the cars classified ads market. They let garages, as well as private car owners, pay to advertise their cars on their website, which drags a sizeable audience. This is what we call “classified ads”, applied to cars.

These executives intend to enter a mature market, with two customer segments:

  • professionals, usually garages
  • private individuals

Differentiate!

Anyone with the task to enter a market should be looking for differentiation.

Obviously, the market dynamics are very different on the two segments: garages tend to operate through a flat-fee, yearly subscription, and may not churn that often. On the other hand, private individuals do not sell cars everyday, therefore it is important to be visible to them, as they may place their ads on any platform without prior knowledge, while proposing a one-shot fee for an ad.

The advertiser remains blind

Meanwhile, “classified ads” is a double-sided business model: ads attracts audience, and audience attracts  ads. Therefore, it is striking to see that, on the studied market, no single site advertises about their actual audience. The advertiser remains blind. Differentiation opportunity #1.

Also, for the car hunters (the “audience”), it is easy to see how many results are returned for a search, except that you need to actually know what you are looking for. It can be inferred that, should differentiation be the key to success, this particular point was a low-hanging fruit.

Asking for the right question

Typically, a cars classified website asks the visitors what kind of car they want. A sedan? An SUV? A coupé ? These are all wrong answers to the wrong question. As the user comes with a particular usage in mind. Therefore, it should be possible to ask: “What would you use your next car for?”. It may be : “Go to work”, “Bring kids to school” (how many?), “Go on extended vacation” (and carry 3 luggages, 2 kids and drive 6 hours in a row), “Go to IKEA and carry pieces of furniture”, etc. Then, the added value of the site would be to score the cars for the above-mentioned usages. Differentiation opportunity #2.

Car classified ads is pretty much the same in every country. It is striking that little has been done to meet the customers’ needs, and avoid copying others. The visitors have to manage their own needs, with very little help. As such, let’s hope that someone comes with a better solution for all future car buyers.

Apple, Book references, Disruption, Innovation, Uberization

[Book Review] The Innovator’s Dilemma

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The Innovator’s Dilemma is an innovation classics, having defined the term of disruption and made Clayton Christensen famous. It is not only a recommended reading, must also a recommended re-reading. A lot has happened since it was published in 1997, and although it has been heavily criticised since then, I find it still relevant in most situations. Obviously management science is no deterministic science, and no theory covers all cases flawlessly. But the disruption theory applies to many domains pro-actively, which makes it incredibly relevant. Note that I read the 1997 version, and other, more modern editions might have tried to broaden the scope of disruption — but I’ll stick to the original “Eureka” version.

In short…

There are countless summaries of their book on the Internet, so I’ll stick to my own take-aways:

  • Disruption is powerful, in that well-managed companies fall in the trap of getting trapped in a high-end niche when trying to best serve customers and optimise resource allocation.
  • Disruption happens when a cheaper alternative, albeit with lower performance, appears on the market. It first requires to look for alternative applications and customers that installed players overlook. But the performance increases faster than the customers’ needs, and ultimately the cheap alternative becomes good enough for the mainstream market. Having matured to something that the incumbent can no longer reproduce easily, they end up… well, disrupted.
  • Strategies to resist disruption require a separate organisation that grows independently: mainstream resource allocation would systematically priorize other projects for existing customers, and the disrupting products cannot initially promise significant revenue generation for a corporate behemoth.  It needs to work like a start-up.
  • Ultimately, when the disrupting product becomes good enough for the mainstream, the choice criteria change. For example, once hard drive all become reliable enough for most applications, other factors might become more important in customer choice, such as price/MB or speed.
  • There are interesting numbers about gross margins in a given “Value Network” (i.e. stakeholders of a value chain), inferring that partners’ margins are heavily structured by their other partners’ own margins. Good to know before exploring new markets (or “just follow the money”, as they say…).

Afterthoughts

Although incredibly useful, this book does not predict the future: it just explains what happens in case of disruption, and give directions on how to manage a corporation successfully to survive disruption. However, it cannot predict when a new technology is disruptive. Let’s list a few randomly-chosen examples:

  • Video streaming: once low-quality and missing content, now Netflix is disrupting TV. One can see how hard it will be for TV channels to catch up, having failed to defend their fortress.
  • Low-power wide-area Networks: LoRa or SIGFOX propose very low-bandwidth, low-power wireless networks with very low cost structure. Today, these networks are find for certain IoT use cases, but they are far from supporting e.g. a phone call,. However, with technology advances, why not imagine them suitable for mid-rate data transfer ? Then it would be disruptive for existing, more traditional networks.
  • Digital cameras: bridge cameras are becoming higher-end, lower volume products, while smartphone cameras are taking over. A clear case predicted by the theory: the lower-quality tech is getting good enough for mainstream, taking volumes away from traditional players, which are flying to quality.
  • Presentation remotes: some people spend up to $80 for a presentation remote. But there are mobile apps that allow to change slides and perform other simple tasks such as timing the presentation. While far inferior in ease of use or features than a traditional remote, these apps are… free ! Definitely a candidate for disruption, provided there is a business model for these apps.

One more thing…

As strange as it sounds, the original iPhone was not a disruption, according to this book. The iPhone was not any cheaper than then-existing smartphones, but was simply superior in term of user experience (reminder: the first version was lacking MMS or 3G, which Nokia phones had had for a long time). So, disruption is not the only way to gain market share. Blue Ocean Strategies, anyone ?

Innovation, Law, New business, Society

On self-driving cars and side mirrors

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According to car manufacturers or large software companies, the self-driving cars are around the corner. What was still a science-fiction research field 15 years ago — my university had such project, led by AI guys walking bare feet and called “the crazy guys” — is now meeting massive capital influx, mindshare from top scientists and consumer momentum. Such cars are being tested live in real roads in California, and now even Switzerland.

But as always in innovation, there are adoption barriers, and they do exist for the self-driving car. Assuming the technology will ultimately work, the main remaining barrier is probably the law: in most countries, you are supposed by law to remain in control of your vehicle. This is a key principle for insurance companies to assess responsibilities in a crash. Easy to overcome, you would think ? not quite. For even technology-mature solutions that over-perform established ones may not make it because of regulations.

Side mirrors are an artefact from the past

As an example, every car has a artefact from the past which should no longer be here: side mirrors. If they had to be invented today, side mirrors would probably not make it to market.

Imagine that side mirrors don’t exist. Drivers need to turn their heads to look at what is coming up behind. A marketing manager identifies it as a customer pain, and asks engineers to find a solution. One comes up with the side mirror — but it comes with its own collection of issues:

  • it will decrease the performance of the car, as it increases the air-penetration ratio. So, the gas consumption will have to increase, say, by 0.5L per 100km.
  • it will impact manufacturing, which will find it more difficult to hold a mirror on the side of the car, rather than having a flat surface.
  • Mirrors will break regularly, generating other sets of customer pains.
  • oh, and by the way, there will still be blind spots, so you will have to put a disclaimer about how poorly it is addressing the issue.

Obviously the marketing manager will ask the engineering team to reconsider. Needless to say, small webcams would be much more efficient to solve this issue — as is the case for going backward in some cars. Some concept cars already support this solution.

So, why are side mirrors still very present in cars ? Because they are compulsory. The law says that cars must have side mirrors. And law has the single biggest kind of inertia that can be. From such regulation, e.g. insurance companies built their processes, defined ways of dealing with others and, ultimately, to cover the risks.

Side mirrors show us what could happen to self-driving cars

The side mirror gives us a glimpse of what it means to have a technology-mature solution that don’t make it to market because of the law. And this could very well be the case with self-driving cars. Actually, you can read more about what happens with side mirrors and regulations at this page.

With that said, we are not even accounting for the difficulties for regulators to certify self-driving algorithms (imagine Apple with a great algorithm, Google with another one, but when put together the cars end up making incompatible choices that end up in crashes). And once you find out how to certify them, which will probably a lengthy process, how do you deal with software updates every once in a while to fix a security issue?

So, it won’t be before long that you see self-driving cars : regulation need to change for this to happen and this typically takes a lot of time. Actually, we don’t even know how to even regulate self-driving cars. This requires to make choices about people’s safety, and this is the last thing that regulators and politicians like to do.

Apple, Innovation, New business, Skills

Want to innovate? do your clients’ job !

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One of the key skills that innovators need to develop is empathy. Empathy is needed in innovation to understand your customer’s pains and reasons to adopt such or such behavior. At the individual level, empathy is triggered by what scientists call the “mirror effect”: when exposed with someone else’s situation, it triggers the same part of your brain as if you were actually living the scene. But how do you create empathy at the organisation level ? The trick is simple: if you want to innovate, do your clients’ job !

Parrot is well know for its best-selling AirDrone, but it is primarily the world leader in OEM hands-free modules for car dashboards. Its products are so good that they are almost ubiquitous: best sound quality, great design, easy to use… but is that all it should be ? Well, to figure this out, Parrot management actually asked its R&D to develop car dashboards. Does it actually SELL dashboards ? No, as it would be competing with its customers (the car manufacturers). But developing car dashboards is a way to go through all the process its customers are going through, and understand the place of its OEM bluetooth modules in the process. So its OEM modules are also the easiest to integrate, because Parrot understood what its customers are going through.

Now, a lot a people believe that Apple is about to sell a car. Obviously, there is evidence that Apple is BUILDING a car. Does it mean that it will SELL cars? I doubt about it. As Apple bacame a platform company, all it probably wants is to understand how car manufacturers will integrate its platform in the most-elegant possible way. Corporate empathy at its best.

 

Disruption, Innovation, Leadership, New business

Leadership in innovation

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In a panel I organized about innovation, a major bank’s innovation director explained how the risk for failure had to be borne by the organization itself, not the individual. This raises the question of leadership in innovation, and I would like to illustrate this concept by a concrete example.

Company A is a leader in its market, having internally developed a solution which gathered several awards from recognized institutions. It is widely believed in the company that this solution is key to the commercial success it experiences on its market. So, at the end, everyone feels good about this cost center.

Since company A is so proud about this solution, one considered selling it to other similar companies in different (read: non-competing) geographies. Minimal resources are allocated for over a year to that purpose, and actual revenue objectives given to a business unit. Finally, one day, “out of the blue”, a large company’s top management contacts A to know more about this solution. Their financial advisers had told them about it — always consider investors’ presentation as a marketing tool for your know-how. Company A joins the RFP bandwagon, gets short-listed, and now feels that things are getting serious.

As deal closing gets close to real, everyone at A gets nervous:

  • the “international” business unit needs to write a contract
  • the lawyers need to back a deal in a foreign jurisdiction
  • the technical team worries about committing on a project in someone else’s technical environment
  • the operations team is wondering how they will work with the customer’s employees and how they will share responsibilities for failures
  • the CFO needs to deal with a foreign currency and country risks
  • a “domestic” business unit, whose revenue depend on company A’s solution, fears that it might lose resources and control over the roadmap — with no upside potential.

All this is crystallized when the deal needs board approval as per A’s governance rules. Risks suddenly get over-estimated, and everyone hides behinds the uncertainties. In short, people are telling the board why this new business should be dismissed, instead of explaining how work could be done. So A is in a situation where it spent resources during over a year on a new kind business, but finds itself reluctant to get real when it finally gets a potential customer.

What is needed in this situation is an actual leader.

R Branson quote

The role of a leader in innovation is two-fold:

  • reassure the teams that s/he will be responsible for what will be done. This means protecting the careers of those who will contribute, as well as giving them the right excuse to change the way they work with others. In this case, the domestic business unit has a roadmap and an existing business based on the solution. Having another company profiting from the same technical team means that the engineers will have to priorize some of its requests. These engineers need this leader to explain the hard truth to the domestic business unit, in the company’s general interest. Same thing when/if a feature gets broken as part of incremental software development.
  • create a team spirit around an ambition. Large structures tend to consider employees as disposable resources, but in this case key resources need to be motivated about this new development. Key contributors need regular updates about the project, a proper kick-off and a good story about where they are heading. Otherwise, why would they bother trading their comfortable, deterministic life against a new set of issues?

As is usually said, leadership is not a given: it has to be taken. Company culture plays an important role in having someone stepping in and be the leader. For example, you may have already seen freshly-nominated directors pretending “to have done that great thing”, much to the deception of the actual do-ers. But when real leadership happens, the impossible gets done: contributors will work smarter and harder to make everyone in the team succeed. Not a given, and not possible in every company, but a clear signal for success.