Innovation: Sometimes It Takes a Village

K@Wharton: Innovation: Sometimes It Takes A Village
Published 24 June 2009

Whether it's a faster way to move data, a cheaper way to power a car, or a cleaner way to sweep up dust bunnies, the right innovation can deliver huge profits to an organization. But given today's fast-paced global marketplace and limited resources for research and development, companies often struggle simply to survive, let alone innovate.

Yet the same forces that have flattened our world may also yield new directions for the future of innovation. During a recent conference at the Mack Center for Technological Innovation, academics and business leaders argued that, rather than going back to the drawing board, companies should go outside their walls and tap into "innovation networks."

An "innovation network" is a web of people, institutions or companies outside of a firm that help it solve problems or come up with new ideas. While organizations have formed alliances and strategic partnerships for hundreds of years, experts say this web of connections is becoming increasingly important today.

"It's all about diversity. It's about getting to everybody who might be able to bring an innovative idea to the table," said conference speaker Dwayne Spradlin, president and CEO of InnoCentive, of Waltham, Mass. "Almost all these things are about [being] better, faster and more cost-effective.... In this kind of economy, organizations have a phenomenal opportunity to think fundamentally differently about the innovation process, and restructure around that."

The conference, titled "Innovation Networks: New Insights, Open Questions and Management Fashions," explored the benefits of innovation networks and looked at different ways that firms manage their expanding webs of partners. Although there was general agreement that a company could benefit from shifting its focus outside its own world, questions remained about how to make innovation networks more successful. Companies often find it hard to open up to innovation from outside sources, or may use their networks poorly and not get the full benefit. A consensus emerged that many companies must change their culture to take full advantage of the power of network innovation.

Despite their importance, alliances between companies only succeed about 40% of the time, said Wharton management professor Harbir Singh, a conference organizer and Mack Center co-director. "Why is the success rate not higher?" Singh asked. "How do we improve performance above 40%?"

Organizations grapple with how to build external networks -- what Singh calls "the extended enterprise" -- without shifting too much focus away from the core needs of the firm. "In order to be successful in the extended enterprise world, you have to invest in alliances and network capabilities," Singh said. "But from a 'focused firm' approach, you would say that alliance and network capability is secondary to the core focus of the firm.... Really, what it comes down to is the tension between creating shared resources versus protecting one's own resources."

Existential questions emerge as alliances proliferate, said Harvard Business School professor and conference participant Ranjay Gulati. "You begin to ask, 'Who am I? Who are we, the firm? Who is 'us'? Who is 'them'? Who are we competing with? Who are we not competing with? Who are the good guys and who are the bad guys?'" Nevertheless, real-world examples show payoffs that can be worth the tension.

As vice president of knowledge and innovation at Procter & Gamble for many years, Larry Huston improved the company's innovation productivity by 60% through strategic alliances and partnerships. Huston created and led P&G's "Connect and Develop Strategy," which involved hundreds of outside partners in research and development. The strategy presumed that for every scientist at P&G, there were at least 200 outside the company who could do similar work. With that mindset, the company's intellectual assets became not just "our know-how" but also "who we knew," said Huston. The result: more than $10 billion in revenue from more than 400 new products -- most of which were created in collaboration with outside partners. In 2007, for example, 186 companies were involved in the 125 new products that went to market. "What we fundamentally did was redefine our organization as 1.8 million people," said Huston. "What you're doing is building an unbelievable infrastructure to innovate with other people's ideas."

From Inventing to Connecting

Now managing director of consulting firm 4iNNO in Cincinnati, Ohio, and a senior fellow at the Mack Center, Huston helps companies re-think their approach to innovation and open networks. "If you look at most organizations, they're focused on what is their intellectual IQ," Huston said. "What we're talking about is moving from inventing to connecting."
Spradlin of InnoCentive puts in another way: "Do you consider the lab your world or the world your lab?"

For InnoCentive, the answer is definitely the latter. The company's raison d'être is to solve problems by throwing them out to the world and seeing what comes back. Companies, foundations or groups of like-minded organizations define a problem and offer a financial reward to whoever comes up with the best solution. "Pick your problem," noted Spradlin. "You can assign an economic inducement to it, organize the masses and get them excited about solving the problem."

InnoCentive now boasts 175,000 "solvers" from more than 200 countries around the world. About 90% are individuals, 10% are organizations and 60% have masters degrees or PhDs. Last year, nearly 50% of the "challenges" posted on InnoCentive's web site generated a solution that was put to use.

Academics who polled InnoCentive's winning solvers discovered something "both startling and intuitively obvious," said Spradlin. "What they found was that typically ... the background of the solver who solved the problem" was "no less than six disciplines away" from the subject area in which the problem emerged. "What that means is, if all the Stanford PhDs in your chemistry lab could have solved the problem, they would have solved it already."

Case in point: Twenty years after the Exxon Valdez oil spill in 1989, as many as 80,000 barrels of oil remain on the floor of Prince William Sound because the oil has been frozen by sub-arctic temperatures, making it difficult to pump to the surface. The Oil Spill Recovery Institute, established by Congress after the spill, ran a $20,000 challenge with InnoCentive in 2007 to try to solve the dilemma, which had perpetually stumped the world's oil experts. After three months, a construction engineer from the Midwest came up with the winning answer, surmising that vibrating the oil could keep it in a semi-fluid state, in the same way cement is kept flowing while it is poured into a form. Modify the drilling equipment, vibrate the oil and you'll be able to pump it, he suggested. It worked.

"When you're ready to move the problem to the outside world, what you really need is some fresh thinking," Spradlin said. "Organizations today aren't set up to do that very well. That's why this network innovation is such a powerful idea."

Conference speaker Mervyn Turner, senior vice president of worldwide licensing and external research at Merck, agreed that the crowd can be powerful. The pharmaceutical giant, based in Whitehouse Station, N.J., cultivates dozens of strategic partnerships and joint programs with external companies worldwide every year. "You have to expand your horizons about where innovation can be found and what it means to innovate in our business," said Turner. "The idea is to celebrate the global nature of innovation, not fight it."

But to make full use of those external networks, the company has to be strong internally, Turner added. "We came to the conclusion that you [need] a really strong internal research and development capability if you are going to leverage external opportunities." Out of 6,000 potential external opportunities annually, the company chooses to purse only about 45 or 50, he stated. "We say 'no' nicely about 6,000 times a year... .You [need] a really good organization to filter through that many opportunities and leverage that capability through collaboration.... [We] continually evaluate things in a highly coordinated way."

Managing the network is even more vital in the aerospace and defense industries, where a handful of companies compete for contracts that can make or break business for decades. "Every aerospace and defense company has mastered alliance formation and alliance management," said Michael Langman, who leads the aerospace and defense practice of PCE Investment Bankers in Winter Park, Fla. In the aerospace and defense industries, external networks are often a substitute for internal innovation, Langman said. "Co-opetition is a fact of life. It just costs so much money to develop the next generation aircraft."

Companies rely on "risk-sharing partners" in dozens of countries to help meet industry demands. In one case, Raytheon won a $11.2 billion contract by assembling a team of 64 different companies across the United States.

"Managing the network is incredibly important," Langman said. "It's a winner-take-all game. If an airline buys a 707, it's going to be 20 or 30 years before it buys the next generation aircraft.... In the [defense] market, it's the same thing. If you're not part of that program, you're going to be shut out for 20 years. It's not like fashion or consumer goods."

Harnessing the power of innovation networks requires not just tight management but vision -- and sometimes a shift in company culture. That was the case for GE, which embarked on a systematic approach to building its innovation network once the company realized it was necessary to maintain a competitive edge. "Historically GE didn't partner very well," said conference speaker Patia McGrath, GE's global director of innovation & strategic connections. "We would either acquire it or build it ourselves."

GE developed a firm-wide initiative to identify key network players and map their importance to the company. In small groups, project teams brainstormed about their immediate network by dividing it into five broad categories: customers, competitors, influencers, scientific development players and suppliers. Categories were then subdivided, analyzed and drawn into maps. Once the team maps were linked together, a clear picture of the company's network began to emerge, and an action plan for leveraging that network took shape.

"The individual maps themselves are terrific, but when you combine them ... you really start to see some key data points emerging," McGrath said. Lesson learned: "If it's simple and cheap -- all it takes is people's time -- you'll get some adoption."

Government and Innovation

http://www.nytimes.com/2009/06/21/technology/21unboxed.html?

June 21, 2009

UNBOXED

Can Governments Till the Fields of Innovation?

By STEVE LOHR

INNOVATION — the tricky, many-step process by which ideas become products and services — has typically been seen, studied and celebrated at the micro level, as a pursuit for entrepreneurs and clever companies.

But governments are increasingly wading into the innovation game, declaring innovation agendas and appointing senior innovation officials. The impetus comes from two fronts: daunting challenges in fields like energy, the environment and health care that require collaboration between the public and private sectors; and shortcomings of traditional economic development and industrial policies.

Innovation policy, to be sure, is an emerging discipline. It lacks crisp definitions or metrics. The most explicit embrace of it has been outside the United States, though the Obama administration is taking some initial steps. Its new budget directs the Bureau of Economic Analysis to develop statistics that “uniquely measure the role of innovation” in the economy. And the government’s new chief technology officer, Aneesh Chopra, speaks of building “innovation platforms” to spur growth.

The rising worldwide interest in innovation policy represents the search to answer an important question: What is the appropriate government role in creating industries and jobs in today’s high-technology, global economy?

That central issue animated much of the discussion at an unusual gathering earlier this month at a lodge north of San Francisco. This invitation-only affair was organized and moderated by John Kao, a former professor at Harvard Business School and founder of the Large Scale Innovation.

A few speakers covered big-think issues like climate-altering geoengineering and water-management technologies. But the main participants were innovation-policy practitioners from nine countries: Australia, Brazil, Britain, Chile, Colombia, Finland, India, Norway and Singapore.

The meeting offered a window onto the state of innovation policy — how it is being defined, and what countries are doing. Above all, innovation policy is an attempt to bring some coordination to often disparate government initiatives in scientific research, education, business incentives, immigration and even intellectual property.

“It’s about setting an agenda and helping build a portfolio of skills that let an economy and a society move forward in smarter, faster ways,” Mr. Kao said.

Yet if the reach of innovation policy is broad, the attendees agreed, it is best done with a lighter touch than industrial policies of the past, which often focused on specific companies for government support. They used metaphors like “impresario” and “orchestra conductor” to describe government’s role. The ideal, they said, is “stewardship,” not command and control.

In Britain, a national innovation agenda is beginning to take shape with policy documents and the creation of a Department for Business, Innovation and Skills. “We’re determined not to second-guess the future by trying to pick winners and losers,” said Philip Rycroft, a senior government official overseeing innovation policy. “But we do think government can create the conditions so that new industries can rise more easily.”

Finland has long taken a comprehensive approach to innovation policy, investing in areas as varied as an outstanding national education system and high-speed Internet connections for its residents. It has also produced a power in the cellphone industry, Nokia.

But Mikko Kosonen, president of the Finnish Innovation Fund, a public investment fund, says Finland now needs an “innovation policy 2.0” to climb the economic ladder to remain competitive. “We see value migrating to software and services,” he explained.

The country has the second-fastest-aging society in the world, after Japan, and its health care costs are rising rapidly. To turn that challenge into a growth engine, Finland intends to become a global leader in developing software and services for medical monitoring and preventive health services. “We think well-being services are the next big opportunity for Finland,” said Mr. Kosonen, a former senior executive at Nokia.

Other governments are also focusing on targets of potential advantage. In Australia, the government is looking to nurture industries that arise from its harsh climate and a scattered population. So research centers are working to improve strains of drought-resistant wheat and cotton for export as adaptive technologies to cope with climate change, said Terry Cutler, who recently headed a government-appointed expert panel on innovation in Australia. And Boeing last year selected Australia as the location for a Phantom Works lab for developing unmanned aircraft, he said.

“Test flights don’t bump into things,” he said. “Sparsity can be a global competitive advantage.”

In India, the government and industry have financed research into products and services that reverse the traditional pattern of innovation flowing gradually from wealthy nations to the rest of the world, said R. A. Mashelkar, chairman of the country’s National Innovation Foundation. Early evidence of the trend, he said, includes the $2,000 Nano automobile, and low-cost drugs for tuberculosis and psoriasis.

“If you make something for the rich, the poor cannot afford it,” Mr. Mashelkar said. “But if you design for the poor, everyone can afford it.”

CLEARLY, the innovation meeting in California was a gathering of enthusiasts. One view not heard was that innovation policy itself is a mistake — government meddling in decisions best left to the marketplace — as free-market purists contend.

Lars Aukrust, executive director for innovation at the Research Council of Norway, answered that criticism by comparing a nation with a large corporation. “If you are going to run a big company,” he said, “are you going to leave it all to serendipity or make some strategic choices?”

“Innovation policy is a probability game,” Mr. Aukrust added. “You can improve the odds of success.”

Jobless MBAs opt for entrepreneurship in the US

See businessweek article.
http://www.businessweek.com/bschools/content/jun2009/bs20090618_346720.htm?campaign_id=rss_smlbz

SBICS Keep Capital Flowing in a Dry Time - BusinessWeek, 5 Jun 09

SBICs Keep Capital Flowing in a Dry Time
The program that has helped such businesses as Apple, Costco, and FedEx is attracting lots of attention from businesses and banks
http://images.businessweek.com/mz/09/66/600/0966_22sbic.jpg


By Jeremy Quittner
Small Biz


Apple, COSTCO, and FedEx (FDX) all have something in common: Early in their histories, each received aid from the Small Business Investment Co. program.

Now, this somewhat obscure program is suddenly in vogue as banks have all but abandoned mezzanine financing, a later-stage funding for private companies. "There is a scarcity of capital for small businesses out there, so a lot of small businesses are looking to SBICs," says Kristi Craig, a senior investment adviser for the Small Business Administration. SBICs are privately held investment companies—in some cases, small private equity or venture capital funds—licensed by the SBA. Some 345 SBICs nationwide can each draw down as much as $150 million from the agency to invest alongside their own funds. SBICs invest, on average, less than $1 million in each of their companies.

Robert Stewart, general partner of Spring Capital Partners, an SBIC in Baltimore, expects to see 300 business plans this year, nearly one-third more than usual. SBICs such as Orinda (Calif.)-based Pacific Mezzanine have seen additional demand from companies whose banks have reduced their loan exposure and from companies looking to buy back their loans. "This didn't exist two years ago," says Nathan Bell, managing partner at Pacific.

SBIC money can be considerably more expensive than a bank loan. Before the credit crisis, bank financing at the mezzanine level was typically structured as subordinated debt with warrants for eventual equity ownership and carried interest rates of about 7% to 10%, compared with twice that for SBIC money now. "A year ago there were plenty of alternative forms of subordinated debt from senior lenders," says Steve Vivian, principal at SBIC Prism Capital in Chicago. Now, SBICs' interest rates suddenly seem a lot more palatable.

SBICs tend to focus on companies with dependable revenue streams that have made it through the startup phase. SBIC-funded companies are often in less cyclical industries such as manufacturing or business services, or as Howard Anderson, professor of entrepreneurial management at Sloan School at Massachusetts Institute of Technology puts it, "lower-risk but lower-gain companies." These companies rarely if ever go public, and they seldom get bought. So while SBICs may take equity stakes, they don't typically install new management, and they're not looking for quick sales.

That's exactly the sort of funding CRS Reprocessing Services, a Louisville company that recycles by-products of the silicon chip manufacturing process, needed to fund its spin-off from BP (BP). In 2007, its management held talks with six private equity firms, but Argosy Partners, the only SBIC it spoke with, offered the best terms. "We liked their management team and style, and we liked the fact they would give us a bigger share of equity than most," says William Lawrence, president and chief executive of CRS. Management was able to keep about 27% of the company, which now has 62 employees and about $50 million in sales. Argosy won't say how much it invested.

Earlier-stage companies certainly can win SBIC backing, too. Red Smith and Larry Henry were originally seeking millions of dollars in venture capital for their company, Emeryville (Calif.)-based ContainerTrac, to beta test its patented technology that tracks shipping containers as they are offloaded at ports. They talked to 50 VCs, but struck out. "Very few companies that are pre-revenue would get the $2 million to $5 million we were after," says Smith, the company's chief operating officer. And VCs were concerned that the company could not grow quickly enough, due to a limited number of seaports.

In 2005, the Georgia Ports Authority in Savannah, Ga., decided to try ContainerTrac's technology. This piqued the interest of Pacific Mezzanine. "They were very clearly a startup," says Pacific's Bell, but "if they were successful, they would get contracts." His fund fronted ContainerTrac about $800,000. This persuaded a second private equity firm to pitch in an additional $1 million, enough for ContainerTrac to conduct its test. If ContainerTrac is unable to pay back the money, the debt will convert to preferred stock. In the event of a sale, it would convert to common stock.

Now, four years later, ContainerTrac is just about to sign its first contract, worth upward of $5 million. It looks like patient capital may finally pay off—for both the company and its backers.

Return to the BWSmallBiz June/July 2009 Table of Contents

Nokia Technopolis Innovation Mill

Helsinki, Finland May 12, 2009 -- Nokia, Technopolis and Tekes today unveiled the Nokia Technopolis Innovation Mill, a ground breaking initiative to recycle Nokia's unused ideas and innovations to selected Finnish ICT companies for further development and exploitation. Prepared and launched in cooperation with several Finnish cities, the initiative aims to match ideas with companies that will be able to develop them into world-class products and services.
Nokia's research and development efforts produce massive amounts of new mobile innovations. Only a fraction of the ideas and concepts finally make it in the market as part of Nokia's offering. Consequently, over the years, thousands of potentially successful innovations have been shelved.
This unique initiative to recycle innovations stems from the founding organizations' commitment to strengthen the Finnish ICT sector and generate new, internationally competitive businesses. The investments in the development projects to be launched as part of the Nokia Technopolis Innovation Mill are expected to total up to 8 Million Euros, including 4.5 Million Euros of public funding.
The three-year initiative is a joint effort by Nokia, Technopolis, Tekes and several Finnish cities. Tekes, the Finnish Funding Agency for Technology and Innovation, has granted a significant amount of the public funding. Technopolis, one of Europe's largest science and technology park chains, will coordinate the initiative and provide business development services to support and enhance the funding effort. The participating cities add to the funding with the aim of boosting the ICT sector in their regions.
"We feel it's important to support the birth and growth of Finnish companies that base their offering on technology and service innovations and aim to build internationally competitive businesses," said Mr. Esko Aho, Nokia's Executive Vice President, Corporate Relations and Responsibility. "As we will not take all of the innovations generated by our R&D into production, we are happy to give other competent companies the opportunity to turn these innovations into success stories."
"Speeding up the economy calls for a new degree of openness. We hope that the Nokia Technopolis Innovation Mill sets an example that companies across other sectors will follow. The current economic climate is just right for a critical evaluation of intellectual property portfolios and the release of the innovations that are more suitable for others to exploit," continued Aho.
The innovations released by Nokia are in areas such as environmental and energy-related solutions, location based services and advertising, near field communication, mobile security, health care applications and future internet services, among others. The objective is to evaluate the thousands of available innovations and select around one hundred to be matched with a company which demonstrates the best ability to exploit them, and which is then granted funding for further development and commercialization.
"More efficient utilization of existing innovations is a novel and interesting perspective in boosting R&D and innovation," said Mr. Martti af Heurlin, Deputy Director General of Tekes."The Nokia Technopolis Innovation Mill is fully aligned with the Finnish national strategic intent to develop new knowledge intensive ventures. Ideally, the initiative will create significant volumes of new international business."
"Nokia is demonstrating exceptional corporate responsibility by releasing innovations for further development and use without compensation," said Mr. Keith Silverang, CEO of Technopolis. "In economically challenging times we need these kinds of collaborative initiatives that benefit the community as a whole. On top of the innovation and financial support, the participating companies will be offered a wide range of Technopolis business development services to help them ramp-up their businesses swiftly."
A selection committee formed by Nokia, Technopolis and Tekes representatives has already started screening and evaluating the available innovations and candidate companies interested in one or more of the ideas. Potential companies are being screened primarily from the databases of Technopolis, Tekes and the participating cities.

SBIR Innovations

NIH Tosses Small Business a Few Crumbs

http://sbircoach.blogspot.com/2009/06/nih-tosses-small-business-few-crumbs.html

I'm not ungrateful. Really. Small technology businesses appreciate any funding opportunities, and the NIH is doing the right thing. But why did it take so long for them to do it? And why is it so pitifully small?

Want to see what they tossed us for Stimulus-funded SBIRs?: RFA-OD-09-009, Recovery Act Limited Competition: Small Business Catalyst Awards for Accelerating Innovative Research

Small business (via SBIR) should have been allocated 2.5% of the NIH's Stimulus pop for R&D. That's something over $200 million. What are they offering us? $5 million. (Hmmmm.... That's 2.5% of 2.5%! Huh! Coincidence or are they sending us a not-so-subtle message?) Funding on these is for up to one year not to exceed $200K. That means a scant 25 awards. Big deal.

Yeah, there's an alleged pot sweetener. Another $35 million to "Spur the Acceleration of New Technologies". But this isn't a small-business only competition. Sure, we can apply. Gee, thanks. Another Challenge Grant-type competition? 

Here's that announcement: RFA-OD-09-008, Recovery Act Limited Competition: Biomedical Research, Development, and Growth to Spur the Acceleration of New Technologies (BRDG-SPAN) Pilot Program 

Well, whaddya know? Valley of Death funding! This is a whole new category for NIH, and I do congratulate them for introducing this. It's a good start. For a company extending SBIR funded technology, to get this award means it's a Phase III by definition. But it's not limited to SBIR funded companies or subject to SBIR eligibility rules. It's NOT an SBIR program. It even has a new NIH Grant Code: RC3.

You see, there's some interesting wording in the Eligibility section that says: "Applications received under this FOA may be given funding priority if the applicant is associated with an enterprise/commercial organization that is of small size (e.g., 500 or fewer employees), and/or of limited resources, such as an early-stage company, and/or one positioned for receiving funding or in-kind support from a third-party investor and/or strategic partner, etc." The key words are "MAY BE given funding priority". 

A friend of mine is the CEO of a small bio-tech company that has won several SBIR awards. He recently made the following observation: "For many years the SBTC and others opposed to BIO’s legislative efforts have argued that VC owned firms should procure NIH funding from outside the SBIR set aside. BIO and NIH have always responded that there are no business funding opportunities outside of SBIR. This new RC3 program -- not SBIR -- is precisely where VC owned firms should be competing for NIH support."

Indeed, there's enough on the table here to attract a VC funded (dare I say controlled) company -- $3 million over 3 years. Much better than SBIR and more focused on where they probably are in their product development life-cycle. 

A new sandbox for the bigger boys to play in. Now will you please stay out of ours? How this new NIH funding category will color the SBIR Reauthorization debate remains to be seen. 

But we have had some crumbs tossed our way, so let's get busy. Due date for grant applications in both of these programs is September 1st.

Help for Small Biz: SBA Backs Interest Free Loans to Ease Cash Crunch, Start-up Nation, 31 May

Help for Small Biz: SBA Backs Interest Free Loans to Ease Cash Crunch

As part of the American Recovery and Reinvestment Act of 2009, the Small Business Administration (SBA) has now added a 100% interest free SBA backed loan with no fees attached. With so many businesses (big and small) crumbling in the current economic climate, the new loan program is an attempt by the SBA to reach out to its small business community. They are hoping to help companies that have been profitable in the past but are currently struggling due to sales declines, inability to access credit, or sky rocketing debt payments.

The loan is for amounts up to $35,000 and meant to be a short-term solution to stimulate cash flow. The goal of the ARC loan is get owners investing in their businesses again, instead of just scrapping by with their heads barely above water. The loan proceeds are systemically paid out over a period of six months and repayment does not begin until the last disbursement has been received. Repayments can be made for up to five years. The loans are available starting June 15^th, 2009 through September 10, 2010 or until the all the funding has been disbursed. The loans will be issued by commercial lenders and then backed by the SBA. The SBA will then pay the commercial lenders a monthly interest rate.

Ideal candidates will have a plan for future cash flow, a history of profitability in at least one of the business’s previous three years, and are no longer than 60 days past due on their current debt payments. The loan program is not available to start-ups, non-profits, or companies that can not prove viability.

This new program just might be the break many small business owners have been hoping for to get them back in control of their finances. For more information, visit http://www.sba.gov/recovery/arcloanprogram or contact your current SBA approved lender for application details.

The New New Economy: More Startups, Fewer Giants, Infinite Opportunity

offering a differing view from kengy

The New New Economy: More Startups, Fewer Giants, Infinite Opportunity

from Wired Top Stories by Chris Anderson

As the Internet was taking shape in the late 1980s, an MIT professor named Tom Malone started thinking about how it could change the structure of industries. In a series of papers, he predicted that the big top-down companies of the 20th century would soon "decentralize and externalize" into industry ecosystems.

"Imagine an AT&T that breaks up into not two or three different companies but two or three hundred thousand different companies," Malone told Wired in a July 1998 interview. "This sort of voluntary, radical disaggregation is an attractive alternative for some large organizations."

It simply stood to reason: Huge vertically integrated conglomerates were created to minimize what economist Ronald Coase called transaction costs between teams and up and down the supply chain. Now distributed-information networks would do the same outside the walls of a single company. The Web would be globalization taken to the extreme. Projects would be open to the best of breed anywhere, creating virtual flash firms of suppliers and workers that would come together for one product and then re-form for another. "Small pieces, loosely joined" was the mantra.

But out in the reality of the world's great industries, the opposite seemed to happen. Corporations just kept getting bigger. On Wall Street, Goldman Sachs was pulling in almost $90 billion a year, tripling annual revenue in less than a decade. The pharmaceutical industry consolidated through hundreds of mergers and acquisitions. The Fortune 10, which today includes Wal-Mart and General Electric, more than tripled in size since 1990. And AT&T, far from breaking up into 300,000 different companies, became even bigger than before and, once again—at least for iPhone users—a monopoly.

And then last September it all came toppling down. Those big financial firms turned out to have been inflated by debt at levels never before seen (and hopefully never repeated). The big car companies crashed head-on into skyrocketing oil prices and plummeting consumer demand. Big Pharma ran out of blockbusters. Wal-Mart kept closing stores, while GE tried to sell off divisions. (OK, AT&T is still an iPhone monopoly, but give it time!)

So now, in the graveyard of giants, it's worth asking: Was Malone right? Was his age of nimble mammals simply delayed by the final march of corporate dinosaurs into the tar pits?

This crisis is not just the trough of a cycle but the end of an era. We will come out not just wiser but different.

What we have discovered over the past nine months are growing diseconomies of scale. Bigger firms are harder to run on cash flow alone, so they need more debt (oops!). Bigger companies have to place bigger bets but have less and less control over distribution and competition in an increasingly diverse marketplace. Those bets get riskier and the payoffs lower. And as Wall Street firms are learning, bigger companies are going to get more regulated, limiting their flexibility. The stars of finance are fleeing for smaller firms; it's the only place they can imagine getting anything interesting done.

As venture capitalist Paul Graham put it, "It turns out the rule 'large and disciplined organizations win' needs to have a qualification appended: 'at games that change slowly.' No one knew till change reached a sufficient speed."

The result is that the next new economy, the one rising from the ashes of this latest meltdown, will favor the small.

Take Detroit. The only way for the Big Three to survive, Charles C. Mann writes in "Beyond Detroit", is to harness the innovation of the myriad startups working on automotive technology.

Or take Google. As Steven Levy explores in "The Secrets of Googlenomics", the company deploys a bottom-up model for ad sales, dictated not by firm handshakes but by hard math.

Or even society at large. A century ago, mass collective action could be organized only by the state. Now we have the Web. Kevin Kelly resurrects socialism—without the state—in "The New Socialism".

To all the usual reasons why small companies have an advantage, from nimbleness to risk-taking, add these new ones: The rise of cloud computing means that young firms no longer have to buy their own IT equipment, which helps them avoid having to raise money or take on debt. Likewise, the webification of the supply chain in many industries, from electronics to apparel, means that even the tiniest companies can now order globally, just like the giants. In the same way a musician with just a laptop and some gumption can accomplish most of what a record label does, an ambitious engineer can invent and produce a gadget with little more than that same laptop.

"Involuntary entrepreneurship" is now creating tens of thousands of small businesses and a huge market of contract and freelance labor. Many will take full-time jobs again once they become available, but many others will choose not to. The crisis may have turned our economy into small pieces, loosely joined, but it will be the collective action of millions of workers hungry for change that keeps it that way.

Chris Anderson (canderson@wired.com) is Wired's editor in chief.

Who Says Innovation Belongs to the Small?

New York Times, May 24, 2009
By STEVE LOHR

FOR more than a decade, the prevailing view of innovation has been that little guys had the edge. Innovation bubbled up from the bottom, from upstarts and insurgents. Big companies didn’t innovate, and government got in the way. In the dominant innovation narrative, venture-backed start-up companies were cast as the nimble winners and large corporations as the sluggish losers.

There was a rich vein of business-school research supporting the notion that innovation comes most naturally from small-scale outsiders. That was the headline point that a generation of business people, venture investors and policy makers took away from Clayton M. Christensen’s 1997 classic, "The Innovator’s Dilemma," which examined the process of disruptive change.
But a shift in thinking is under way, driven by altered circumstances. In the United States and abroad, the biggest economic and social challenges — and potential business opportunities — are problems in multifaceted fields like the environment, energy and health care that rely on complex systems.

Solutions won’t come from the next new gadget or clever software, though such innovations will help. Instead, they must plug into a larger network of change shaped by economics, regulation and policy. Progress, experts say, will depend on people in a wide range of disciplines, and collaboration across the public and private sectors.

"These days, more than ever, size matters in the innovation game," said John Kao, a former professor at the Harvard business school and an innovation consultant to governments and corporations.In its economic recovery package, the Obama administration is financing programs to generate innovation with technology in health care and energy. The government will spend billions to accelerate the adoption of electronic patient records to help improve care and curb costs, and billions more to spur the installation of so-called smart grids that use sensors and computerized meters to reduce electricity consumption.

In other developed nations, where energy costs are higher than in the United States, government and corporate projects to cut fuel use and reduce carbon emissions are further along. But the Obama administration is pushing environmental and energy conservation policy more in the direction of Europe and Japan. The change will bolster demand for more efficient and more environmentally friendly systems for managing commuter traffic, food distribution, electric grids and waterways.

These systems are animated by inexpensive sensors and ever-increasing computing power but also require the skills to analyze, model and optimize complex networks, factoring in things as diverse as weather patterns and human behavior.

Big companies like General Electric and I.B.M. that employ scientists in many disciplines typically have the skills and scale to tackle such projects. Their advantage is in "being able to integrate innovations across these complex systems," said James E. Spohrer, a scientist at I.B.M.’s Almaden Research Center in San Jose, Calif.

Technology trends also contribute to the rising role of large companies. The lone inventor will never be extinct, but W. Brian Arthur, an economist at the Palo Alto Research Center, says that as digital technology evolves, step-by-step innovations are less important than linking all the sensors, software and data centers in systems.

Today, Mr. Arthur said, the unfolding "digitization of the economy" is in some ways a modern rerun of past technology waves, from steam power to electricity. "It’s not individual inventions that matter so much, but when large bodies of technology come together and have an impact across the economy," he said. "That’s what we’re seeing now."

In computing, some technological frontiers require size and deep pockets. To be competitive in Internet search and some other Web services, which cater to hundreds of millions of users worldwide, a company must build data centers of gargantuan size, and only a handful of companies can design and afford them, led by Google and Microsoft.

"There are just a few companies in a position to do computing and process data in a way never done before," observed Richard F. Rashid, Microsoft’s senior vice president for research.
The innovation tilt toward big companies, to be sure, is a rebalancing. There is still plenty of bottom-up innovation, including promising start-ups in the environmental and energy businesses. At the individual level, tinkering users have made significant contributions in fields as diverse as software and sporting goods.

STILL, the pendulum of thinking on innovation does seem to be swinging toward the big guys. In health care, institutions that have done best in improving the health of patients with chronic conditions like heart disease and diabetes have been larger, integrated systems like Kaiser Permanente in California, Intermountain Healthcare in Utah and the Geisinger Health System in Pennsylvania. They have the scale and incentives to invest in things like wellness programs and electronic health records.

In a new book on health care, "The Innovator’s Prescription," Mr. Christensen and the co-authors, Dr. Jerome H. Grossman and Dr. Jason Hwang, say that such large integrated systems "have the scope to create within themselves a new disruptive value network."

In an e-mail message last week, Mr. Christensen, a professor at the Harvard Business School, said that big companies do tend to resist disruptive innovation but that size need not spell failure. "The good news is that, once they recognize the benefits of disruptive thinking," he wrote, "the big companies have all the resources necessary to induce change."

Businessweek - Think Twice about being first to market, 19 May

2004, David Cohen had an idea for a social network for mobile phones that would connect users in the real world. His Boulder (Colo.)-based company, called iContact, raised $600,000 from investors and the founders' contributions, launched a beta version, and seemed poised to tap the much hyped mobile software market. Cohen, then 36, had already founded a successful software company. But after 18 months, he was unable to get phone carriers to distribute his software, and he shuttered the company, returning 80% of his investors' money. "Everybody was saying mobile was coming, it was going to be open; GPS was coming, it was going to be great," says Cohen. "That didn't really happen for another four years."

Bets on mobile applications didn't begin to pay off until Apple's (AAPL) iPhone app store opened the market in 2008. Several companies that followed iContact's path later found more traction, including Loopt, Mig33, and Brightkite, a startup Cohen invested in which was acquired last month by competitor Limbo.
The Real Competitive Advantage

Conventional wisdom says being first to market creates a competitive advantage. Reality is more complicated. Market opportunities are constantly opening and closing, and a hit idea at one point could be a dud a year earlier or a yawning "me too" business a year later. It's tough—likely impossible—to pinpoint the best moment to enter a market, but common sense dictates new entrepreneurs can improve their odds if they weigh how much they stand to gain or lose by waiting.

New academic research suggests one way entrepreneurs can evaluate whether they should enter a market first or wait on the sidelines. The decision depends on how hostile the learning environment is; that is, how much entrepreneurs can learn by observing other players before they launch compared to what they learn from participating after they enter, according to Moren Levesque, an entrepreneurship researcher at the University of Waterloo. Levesque, along with professors Maria Minniti of Southern Methodist University and Dean Shepherd of Indiana University, used a mathematical model to weigh the risks and benefits of entering the market early. Their research, published in March in the journal Entrepreneurship Theory and Practice is among the first to explore "how different learning environments may influence the entry behavior of entrepreneurs." (Note: The article is behind a pay firewall.)

The crux of the academics' findings on timing is this: In a hostile learning environment, entrepreneurs gain relatively little benefit by watching others. For example, if the relevant knowledge is protected intellectual property, studying the market before entering wouldn't yield much advantage. In these situations, the trade-off favors entering early. But in less hostile learning environments, where entrepreneurs gain valuable information likely to increase their success just by watching other companies, companies benefit from waiting and learning lessons from earlier players. IContact's successors, for example, may have learned from watching the company's trouble getting mobile networks to distribute their software, a barrier that was removed by the iPhone's app store.

"If you enter early, you are more of a pioneer. You can have a competitive advantage," by locking in key customers, suppliers, or intellectual property, says Levesque.

User-Driven Companies Should Start from Within

Lee Bryant argues the following in his presentation here...

• User-driven Innovation and co-design are great; plus, it is a real source of competitive advantage and can build closer relationships with customers and partners.
• Open source communities and crowdsourcing are great co-production models if they can be successfully applied beyond the technology world.
• We already have some good user-driven examples, such as Digg, Dell Ideastorm and even potato crisps, but how do we take this further and 'bake in' this model into business culture in general?
• The way Twentieth Century companies talk to customers is problematic. They treat them as a mass, a herd, to be segmented and messaged. The notion of CRM and call centres involves spending lots of money (and wasting your customers' time) to keep your customers at arms length, and in many cases to make them hate you. How can we change that? Doc Searls' model of VRM might be one way. Are there others?
• The downturn is an opportunity to change this. As the tide recedes, it is exposing many business models as too costly. As Umair Haque mentioned elsewhere at the conference, using VC money to 'buy' audience or customers is no longer a good option. Flat, responsive structures will succeed better than the model of mass marketing and segmentation. What can we learn from Threadless, for example, that can be applied to larger businesses?
• Indeed, what is the goal of a company? Is it purely profit maximisation in the short-term, pure plunder or perhaps sustainable income over the long-term? In the past, business motives were often more balanced between profit and social status or respect.. For example, Hamburg was one of the principal cities of the Hanseatic League, which was an incredibly powerful trading network than spanned northern Europe, and was a successful model of co-opetition and shared value creation, rather than just short-term individual gain. Many corporates, such as Unilever and Cadbury began with very strong social as well as financial goals. Even banks have traditionally been seen as a profession with codes of conduct and a long-term custodian role in the financial sector. It is only recently that executives such as Sir Fred Goodwin have got the balance between their social status and their value extraction so badly wrong. He is not a popular or respected man, despite being rich.
• If we want to create truly user-driven companies, then we need to start on the inside and recast their relationship with both customers and employees. There is no point being open at the edges if you treat your employees like machines - you simply cannot deliver on the promise that way. Harnessing people power inside and out means allowing staff to be human and talk as humans, and using them to drive better relationships with customers.
• Companies that can do this are likely to succeed, but they also need to place value and faith in their ecosystem and networks to create a sense of common purpose (this may or may not be manifested in a brand identity) and create and share value around their mission.

Categories:

• Corporate,
• Media and Publishing,
• Public and Third Sector

Tags for this entry:

business, corporate, engagement, innovation, next09, userdriven

Types of Innovation

Stumbled across this article here which talks about different types of innovation

1. Foresight-powered vision-driven innovation
2. Modification and sustaining innovation
3. Open collaborative (industry) innovation
4. Jobs-to-be-done or user-driven innovation
5. Exploration and experimentation-based innovation

Good to acknowledge that not all innovation is the same and there are different forms of innovation. Looking for more articles on user-driven innovation.

Singapore Firms Turn to Bartering

By Mariko Oi Asia Business Report, BBC World, Singapore
16 May 2009

In northern Singapore, among many residential flats, there stands a huge six-storey building called Northlink.

It houses more than 500 small to medium sized businesses, or SMEs. They are the backbone of Singapore's economy, and yet they are the hardest hit by the current recession. Since the global credit crunch spread to the city state, banks became nervous to lend - especially to SMEs. Alarmed by the situation, the government has announced that it will spend almost $4bn (£2.6bn) to stimulate bank lending in the budget.

But Singapore is experiencing its worst downturn in its history, with the economy forecast to shrink by much as 10% this year. And the freeze in credit markets is not yet thawing. So businesses are turning to alternative methods to pay their bills, a tactic once considered a last resort, namely the age old practice of barter trade.

Last resort
On the top floor of Northlink building, manager Malvin Khoo is busy finalising deals with his clients. He owns a Singapore based printing and packaging firm that employs 15 people.

"The greatest thing about bartering is I could be ordering a jumbo jet, or a yacht tomorrow," he quips. Obviously, that is "quite unlikely", he laughs, though he has managed to use a property in Malaysia to barter with. "It is the cheapest way to expand my business." Mr Khoo joined Barterxchange, a network of 600 businesses in Malaysia and Singapore, 18 months ago.

Instead of simplistic one-to-one direct exchange of goods and services, members go online.
Forget cash. They have their own universal currency.

Companies earn credits by offering their services and skills. They can then use them to get what they need from other members.
"I had some customers that I did packaging for, who had surplus plates," explains Mr Khoo. "So I structured to trade $20,000 worth of plates to restaurants. Some of them were just opening up so they needed new plates."

In return, Mr Khoo scored free meals at various restaurants. One of them is Megumi Japanese restaurant, which has sold dining vouchers worth more than $10,000.

"Not only did we get free webpage design and printing services by bartering, we also got some tremendous exposure to the business community," says managing director Hazel Hok.
"We used to be a local neighbourhood restaurant, but we have seen a significant increase in corporate functions."

New members
And there is no geographical boundary. Asia's biggest barter trade site is connected to more than a dozen global websites, where half a million companies participate. "We have even sent electronic goods to Nigeria," says Lee Oi Kum, executive chairman of Barterxchange.

The industry is now worth over $8bn annually, according to the International Reciprocal Trade Association. And its popularity is rising. Barterxchange has seen a 30% jump in its membership since 2007. Companies cannot operate solely by bartering. But it definitely offers alternative methods to make things a little easier.

Australia to offer 40% R&D tax credit

Extracted from FT

Australia to offer 40% R&D tax credit

By Aban Contractor in London

Published: May 17 2009 23:45 | Last updated: May 17 2009 23:45

Foreign companies will be able to claim 40 cents for every dollar invested in research and development under new rules to be introduced by the Australian government.

Senator Kim Carr, the minister for innovation, industry, science and research, said companies would be eligible even if the intellectual property were owned outside Australia. “This is the biggest increase since records began and the biggest change to business innovation support in more than a decade,” he said.

The 40 per cent tax credit, to be introduced from July next year, would offer “more generous and more predictable incentives for doing R&D in Australia”, he told the Financial Times on Sunday.

The scheme, to be managed through the Australian tax-return system, would have no turnover limit.

“People in the public research and innovative business sectors have praised us for increasing funding [in the recent federal budget] despite the global recession,” said Mr Carr.

“They’re missing the point. We aren’t making these investments despite the downturn – we’re making them because research and innovation are the key to accelerating recovery.”

Mr Carr said the Labor government came to office at the end of 2007 aware that Australia “was falling behind in the race to the top”. The rise of innovators such as Russia and, in particular, China was threatening to see Australia slip back even further.

Mr Carr said the government had a 10-year strategy to boost Australia’s innovation capacity and performance. Last week’s federal budget included A$3.1bn ($2.3bn, €1.7bn, £1.5bn) in new money for research and innovation, with total funding to reach almost A$8.6bn in the financial year beginning in July.

Mr Carr said the R&D tax credit would replace the complicated and outdated R&D tax concession.

Under the old system, foreign companies had to apply for an “international premium” for reimbursements. Industry feedback showed that the unpredictability of the system provided little or no incentive for companies to invest in new projects, or for multinationals to locate their R&D in Australia.

According to figures seen by the FT, in 2007-08 fewer than 20 companies registered for the premium.

How David Beats Goliath

by Malcolm Gladwell

http://www.newyorker.com/reporting/2009/05/11/090511fa_fact_gladwell?currentPage=all



".......David’s victory over Goliath, in the Biblical account, is held to be an anomaly. It was not. Davids win all the time. The political scientist Ivan Arreguín-Toft recently looked at every war fought in the past two hundred years between strong and weak combatants. The Goliaths, he found, won in 71.5 per cent of the cases. That is a remarkable fact. Arreguín-Toft was analyzing conflicts in which one side was at least ten times as powerful—in terms of armed might and population—as its opponent, and even in those lopsided contests the underdog won almost a third of the time.

In the Biblical story of David and Goliath, David initially put on a coat of mail and a brass helmet and girded himself with a sword: he prepared to wage a conventional battle of swords against Goliath. But then he stopped. “I cannot walk in these, for I am unused to it,” he said (in Robert Alter’s translation), and picked up those five smooth stones. What happened, Arreguín-Toft wondered, when the underdogs likewise acknowledged their weakness and chose an unconventional strategy? He went back and re-analyzed his data. In those cases, David’s winning percentage went from 28.5 to 63.6. When underdogs choose not to play by Goliath’s rules, they win, Arreguín-Toft concluded, “even when everything we think we know about power says they shouldn’t.”

....David can beat Goliath by substituting effort for ability—and substituting effort for ability turns out to be a winning formula for underdogs in all walks of life........."

Interesting article with ramifications on us as the perpetual underdog with little resources. Question is, are we still playing by Goliath's rules or should we be exploring more blue oceans?

Student-Led Innovation

Stroke of Genius

Posted by: Jessie Scanlon on May 14

http://www.businessweek.com/innovate/next/archives/2009/05/stroke_of_geniu.html#more

Tis the season of student design projects, as my colleague Bruce Nussbaum has pointed out. As students across the country publicly display their work, it’s a chance for potential employers to spot new talent and for potential funders to identify innovative product ideas. (For anyone who assumes student concepts are inherently blue-sky, impractical ideas, I have two words for you: Deborah Adler.) A striking example of student innovation goes on view today at Philadelphia University’s Senior Design Show: The Benson Rower, designed by Dan Tafe and Tim Poiesz, industrial design seniors at the university’s College of Design, Engineering and Commerce.

The Benson rower looks and functions nothing like those gym machines, on which the rower slides back and forth on a static track while pulling a handle. Such machines provide a good cardiovascular work-out, but they don’t come close to simulating the feeling of sculling, of pulling two oars through the water, and keeping steady despite the waves. Tafe and Poiesz’s prototype, by contrast, mimics the range of motions and pivots that a rower experiences on the water. (Tracking down some video now.)

The machine is named for former New Hampshire Gov. Craig Benson—an avid rower and a friend of the university’s president, Stephen Spinelli—who challenged the students last spring to create a more realistic rowing machine. Tafe and Poiesz, both mechanically inclined designers, leapt at the opportunity. To research the project, the students rode the erg machines that the school’s crew team trained on, and spent a lot of time talking to the rowers. Then the crew coach sent them out in a scull – a terrifying experience, according to Tafe, but essential for teaching them how the machine needed to feel.

Armed with their new rowing knowledge, the pair began building software models of how the machine could work, refining the models over the course of the fall semester. Based on the strength of these virtual designs, the pair got the funding to build a full-scale physical model over their winter break. It was clunky, but functional, and allowed Tafe and Poiesz to test the various cables, springs, and cylinders that allow the machine to pivot forward and backward and to roll from side to side. But the key to the Benson’s movement are the four custom-made pneumatic parts called “fluidic muscles” from the German company, Festo. These parts contract like muscles when they compress air and provide a remarkably wide range of smooth motion. (You can get a sense from this video of Festo’s AirJelly.)

So one year and $26,000 after Benson issued his challenge, Tafe and Poiesz have a sleek functional prototype, which is impressive, given that lost of companies don’t work that fast. The pair also has a business plan—thanks to a collaboration with four Philadelphia University MBAs.

Angel funders, take note.

Samsung's CEO - Winner of Design Leadership Award

This sheds some light on the emphasis Samsung places on design and the initiatives it has developed to promote design across all its affiliates.

“Design Leadership Award” 2004
Background information on the Winner

Lee Kun-Hee
Chairman and Chief Executive Officer
Samsung

Lee Kun-Hee’s Vision for Design
“Intellectual assets will determine a company's value in the 21st century, the ‘era of culture.’ The age when companies simply sell products is over. In the new era, enterprises have to sell their corporate philosophy and culture. An enterprise's most vital assets lie in its design and other creative capabilities. I believe the ultimate winners in the 21st century will be determined by these skills.”

Leadership Philosophy of Lee Kun-Hee
In 1993, Chairman Lee Kun-Hee presented a blueprint for Samsung’s global success in the 21st century with his manifesto of “New Management” that encompasses intellectual capital, organisational creativity, technological innovation and employee empowerment as the key strategies for Samsung’s profitable growth in an era of unbridled global competition.

The implementation of “New Management” began by encouraging individual employees to first make changes within themselves, striving to care more for others and to behave ethically. Today, performance at Samsung is measured in qualitative rather than quantitative terms. International competitiveness is an overriding objective, achieved through the multi-faceted integration of facilities as well as the development of global information systems. Samsung’s ultimate goal is to achieve quality-of-life improvements worldwide by succeeding as a top-tier enterprise in the 21st century.

As Samsung expands its global presence and recognition, it has not lost touch with its roots in Korea. Samsung continues to be a leading influence and major supporter of the Korean economy, society, and culture.

Although Samsung-affiliated companies are spread over a range of industries and operate independently, they share the same overall management philosophy, code of conduct and corporate identity. Chairman Lee is responsible for determining the long-term vision and strategic direction for the group, while Chief Executive Officers of each affiliate have the responsibility for autonomous decision-making on ordinary business issues.

Samsung aims to grow the businesses of the group to about US$224 billion in sales by 2010, with gross income of around US$25 billion. Total assets are expected to exceed US$280 billion.

Milestones & Achievements in Design Leadership

Mar 1993:

- Announces 2nd phase of Samsung’s “Second Foundation”
- Samsung adopts new CI

Jun 1993:

- Announces Samsung’s “New management” initiative (switching priorities from quantity to quality)

- Samsung Design Membership Program launched: A program to support the rapid recruitment and training of topnotch designers

Mar 1995:

- Samsung Art & Design Institute (SADI) established: A public design training institution established in a joint program with the US-based Parsons School of Design to broaden the pool of Korean design talents (fashion design and communication design).

Sept 1995:

- Innovative Design Lab of Samsung (IDS) established: Prominent designers from overseas are invited to teach its year-long full-time program for cultivating designers in-house for the Samsung Group (design of various products, to include automobiles and multimedia devices).

Jan 1996:

- The “Year for Design Innovation” announced group-wide: Design training is provided to top management to foster a design mindset and to expand the design base.

Jun 1996:

- Design concept guidelines for Samsung and a master plan established.

Dec 1997:

- The Samsung Design Awards instituted (The best designers in the group are selected and honored each year.)

Dec 2000:

- Chairman Lee awarded Korea Design Management Prize; Samsung designated “Best Design Management”

Mar 2001:

- Design Management Center established for CEOs: Design Committee of CEOs is organised.

Jul 2003:

- Comparative exhibit of leading products held (annually): Samsung Electronics product designs are benchmarked; in-person inspections elevate awareness of design importance.

May 2004:

- Chairman Lee selected among the 20 “Masters of Design” by Fast Company magazine in the US.

Oct 2004:

- Second phase of the “Samsung Design Revolution” announced: Design improvement approaches are established to surge forward as one of the very best design organisations in the world.

The Economist - Starting Successful New Companies in the Downturn

Starting Successful New Companies In Recessions

Posted by: Michael Mandel on May 03

First, my apologies for disappearing for a bit. I was travelling, and then got otherwise distracted.

People have hypothesized that it’s easier to start companies during downturns, because labor, rent, and other resources are cheaper (in economic jargon, the ‘opportunity costs’ are lower). And there have been plenty of news articles talking about out-of-work professionals going into business for themselves.

But here’s a slightly different question—is it easier to start a successful company during a downturn? Not so obvious, is it? It might be easier to start a company, but harder to start a successful one if the economy is weak.

Take a look at the table below, which was put together by Gary Beach, publisher emeritus of CIO magazine. The table, based on the Fortune 500, shows what percentage of top companies were incorporated during a recession (Gary was using Wikipedia’s list of U.S. recessions, which goes back further than the NBER’s list of U.S. recessions).

	Based on Fortune 500				percentage that were incorporated into business
						during a recession year
	Top 10 companies						70%
	Top 25 companies						64%
	Top 50 companes						52%
	Top 100 companies						43%
	Top 500 companies						36%
	percentage of years that the U.S. has been in recession						39%
	Data: Gary Beach

By Gary’s count, the U.S. has been in recession for 39% of its years. Looking at the entire Fortune 500, 36% of them were incorporated into business during recession years, which is no great shakes.

But as we move up to the most successful companies—the ones at the top of the list—the situation changes. Among the top 10 companies, according to Gary, a full 70% were started during recession years.

SBIR and Venture Capital

• Federal Aid Sought for Equity-Backed Companies
  

As Funding Ebbs, Venture Capitalists Push for Start-Ups to Have Access to Traditional Small-Business Programs

By KELLY K. SPORS

APRIL 21, 2009, 9:59 A.M. ET

With equity investments in new companies drying up, venture capitalists and angel investors are pushing the federal government to give them financial relief and access to small-business programs traditionally reserved for noninvestor-backed businesses.

The investors' ideas include allowing venture-backed companies to compete for federal research-and-development money reserved for small businesses, creating government-sponsored seed funds to help investors make early-stage equity investments in start-ups and providing new tax credits to equity investors.

But some businesses that traditionally have been served by Small Business Administration programs and loans fear that providing more government aid to equity-backed companies will divert attention from those that really need help.

Equity investors point to President Obama's appointment of Maine venture capitalist Karen Gordon Mills as SBA administrator as a sign that he backs bolstering the agency's support for early-stage investing. At her April 1 confirmation hearing, Ms. Mills signaled she wanted to serve both traditional small businesses and those in the emerging "knowledge economy," such as clean technology and life sciences start-ups.

SBA spokesman Jonathan Swain says Ms. Mills, confirmed on April 2, hasn't yet laid out her agenda for the agency. But he says President Obama appointed her to the job partly because of her background in equity financing and experience with high-growth small businesses. "I think certainly she's going to look and make sure the SBA is working as effectively as possible to help small businesses, and that includes high-impact small businesses," he says.

At a hearing late last month of a subcommittee of the House Small Business Committee, several leaders of venture-capital firms and angel-investor networks testified that the economy had severely hurt their ability to fund small companies in recent months. "Equity investment not only spurs small-business growth but also sparks the development of new products and industries," said Rep. Jason Altmire (D, Pa.).

U.S. venture-capital investments fell 61% in the first quarter, according to a new PricewaterhouseCoopers report. Angel investing dollars fell 26% in 2008, according to the Center for Venture Research at the University of New Hampshire.

"There needs to be a balance" when handling the financial needs of "Main Street businesses and innovation entrepreneurs, and I think the SBA is capable of serving both," says Rich Bendis, chief executive and president of Innovation America, a Philadelphia-based nonprofit that works with investor groups.

In December, Innovation America and the National Association of Seed and Venture Funds pitched to members of the Obama transition team a plan to create a government-funded $1 billion seed fund that would shore up angel-investing groups and regional early-stage equity investment programs, which provide equity investments to start-ups. He says the new administration seemed receptive to the idea, but hasn't moved forward on the proposal.

Michael Gurau, president of CEI Community Ventures, a Portland, Maine, venture-capital fund on whose board Karen Mills served, says he would like to see the SBA put more emphasis on equity investments, such as increasing funding for the federal SBIC program, which aims to bolster venture-capital funding for start-ups. Proponents of increasing federal assistance for small, equity-backed companies say it is high-growth start-ups that create the most jobs. According to the National Venture Capital Association, venture-capital firms account for only 0.2% of all financing, but 10% of all U.S. workers are employed by a company that was once venture-backed. The association is pushing Congress to pass legislation allowing venture-backed companies to compete for contracts through the Small Business Innovation Research program, or SBIR, which requires that federal agencies give 2.5% of their research-and-development budgets to small, independently run businesses. Venture-backed companies don't generally qualify for the program now.

Many small-business owners served by the SBA or other programs aren't pleased with the prospect of competing with venture-backed companies for government programs. Karl Kiefer, president and owner of Invocon Inc., a Conroe, Texas, maker of high-tech electronics with 25 employees that has won about $9 million in SBIR contracts since 1991, says competing for SBIR contracts with venture-backed firms could hurt firms like his.

Venture capitalists "can create a competitive posture that would squash us like an ant," Mr. Kiefer says.