The Renaissance Innovator

Thoughts, examples and updates on the Renaissance Innovation Method

Making car manufacturing sane: Business Model Innovation at Volkswagen

Posted on September 13, 2012

         After a brief hiatus due to vacations and travel over summer, the Renaissance Innovator blog is back!  While I was catching up on the stack of journals which accumulated over summer, a Fortune article about Volkswagen which describes transformation of the company from a local German producer to a global phenomenon with over €160B in sales caught my eye.  Volkswagen has quietly passed General Motors and Toyota last year to become the largest automotive maker in the world. So what is its secret?

Outclassing Sourcing Champions

Posted on May 28, 2012

With  increasing  specialization,  technological complexity, and globalization, firms now buy a long list of products and services from many outside providers. In industries like automobiles, consumer electronics and retail, reliably sourcing a multitude of products from supply chain partners is the key to success. Li and Fung limited, one of the worlds fastest growing companies,  is fundamentally altering this  sourcing landscape and is simultaneously changing the game in these industries which rely deeply on sourcing. It is a company which owns no production, transportation or retail facilities, but by becoming the key link in  the sourcing  practices of some of the worlds best known companies like Gap, Benetton  and Walmart, has found a novel winning formula. So how has this firm created a multi-billion dollar business for itself by outclassing companies like established sourcing champions like Walmart at the game of sourcing?

The Darwinian Workplace in the WinnerS-take-all Organizations

Posted on May 3, 2012

The latest issue of Harvard Business Review features an article “The Darwinian Workplace” on promoting healthy competition in the workplace that I co-authored.  The key message of the article is based on several research projects with highly innovative technology companies that implemented tournaments among its workers to increase worker productivity and, at the same time, to increase firm’s profitability. Competition in high-end jobs in industries ranging from movie making to professional athletes to politics is nothing new but can the same principles be applied in industries as mundane as retail, call centers and restaurants, which usually employ minimal-wage workers, with minimal motivation and incentives to work hard?  Labor costs in these industries typically represent the largest operating expense and the number of people employed constitutes a significant proportion of population of any developed country.  Yet, there are few success stories when it comes to improving productivity of this huge labour force.  However, a  wave of innovative companies is changing this status quo, and in my research and consulting I had an opportunity to analyse data from such companies and see effects of workplace competition first hand. In my mind, these companies are excellent examples of the Business Model Innovation.

How to Innovate for a Greener World (and Make Money)

Posted on April 8, 2012

In the minds of both consumers and managers going green is typically thought as being associated with an additional expense.  We see this in food stores, for instance, where organic products cost more.  Despite this general perception, there exists a simple approach for just about any organization or household to become more sustainable and make more money in the process.  The miracle solution  lies in Energy Efficiency projects. For instance, replacing old incandescent and halogen light bulbs with new energy efficient compact flourscent bulbs, installing additional insulation, motion-activated light switches, replacing old-leaky windows, buying energy-efficient heaters, are all known to lower carbon footprint while dramatically lowering energy bills!  In fact, Energy efficiency projects are the easiest and the fastest way to reduce greenhouse emissions, their return on invested capital is large, and these projects do not rely on any new or unproven technology.  Nevertheless, only a miniscule proportion of houses and organizations implement them.  This certainly looks like a paradox and, in a way, it is: here is a simple solution to one of the world’s most vexing problems, but it is not adopted at any significant rate.  The problem lies in the alignment of incentives induced by the business model and the situation calls for a Business Model Innovation

Generating New Business Opportunities

Posted on April 3, 2012

Over the last 2 weeks, I have been teaching a newly developed INSEAD MBA course  on Identifying New Business Opportunities (INBO).  The class is structured as a hands on  experiential workshop that combines three novel approaches to Innovation/Entrepreneurship: Business Model Innovation, Idea Tournaments and Lean Startups/Discovery Driven Planning. As regular readers of this blog know, Business Model Innovation is all about  identifying entrepreneurial opportunities via innovating the business models in existing competitive industries. Idea Tournaments is a process that leverages the wisdom of the crowd for selecting and developing amongst new business opportunities. Discovery-driven planning  philosophy prioritizes tasks to limit entrepreneurial risk. Taken together, these approaches are in contrast to the conventional serendipitous, solitary  process of innovation and it instead provides a systematic, risk-limiting pathway to realizing innovative outcomes.
As a group in class, we experience these techniques hands-on and we jointly start multiple new ventures. The workshop proceeds in three phases– an  idea generation phase, an idea selection phase and an idea refinement phase. Participants generate 100s of new business opportunities and each week  they are  required to complete a carefully designed task that advances these opportunities in a venture-risk limiting way. The tasks highlight the strength and weaknesses of different opportunities and, as a group, participants vote off the weakest opportunities, progressively filtering them down to the 20 or so most promising ones, many of which we develop into real businesses.  Yes, it is a twisted combination of  American Idol, The Apprentice and The Survivor…

SXSW: INSEAD @ South by Southwest

Posted on March 18, 2012

The 2012 edition of the South by Southwest conference (SWSX)  wrapped up in Austin last week. Over the last years, this  has become one of hottest stops on the startup circuit, earning a reputation as the biggest breeding ground for new ideas and creative technologies– notably, both foursquare and twitter  catapulted to the big leagues after they  presented early versions at SWSX.  To coincide with all the buzz around SXSW,  I  decided to spend a better part of  this week’s sessions of Identifying New Business Opportunities, an MBA class I am currently teaching, discussing some of the hottest trends from the conference.  A small contingent from the class had attended  SXSW and they got us started by  sharing what caught their attention at the conference (Thanks Nicole, Charlotte and Joanna!).  As is typical in the INSEAD classroom, our very creative group of MBA participants  couldn’t stop imagining the possibilities enabled by some of the newest media platforms debuted at the conference — hopefully, some of the ideas will become real products, that I can blog about one day!  More pertinent for the readers of this blog, as a group we identified a few clear trends and implications for innovative management…

Innovating Presidential Elections: What Can one Learn from the Russian Experience?

Posted on March 11, 2012

Recent presidential elections in Russia have drawn worldwide attention over the last few months.  There was, however, one aspect of elections which did not receive as much coverage in the western press (at least in my opinion).  Of course, elections have been held the world over, in pretty much the same way for many decades. But for this Russian election, the  authorities implemented a very interesting and very significant, in my view, business model innovation.  What is the key issue in conducting elections in a country like Russia?  It is, of course, the doubt in public minds whether elections will be fair.  It is relatively easy to seed disbelief in the minds of the public: after all, it is bodies controlled by the current government that count the votes. The fundamental problem that one must confront here is not that different from issues faced by regular companies: the lack of precise information about the will of people. I will come back to how this is similar to, say, a furniture retailer’s desire to know consumer preferences but first a few words about the innovation itself.

What is the “best” way to innovate?

Posted on March 4, 2012

MIT Sloan Management Review just came out with the latest 2012 picks for the world’s most innovative companies. This is a great list which includes 50 very interesting companies (mostly young) in a number of industries. While I enjoyed reading about these innovative companies, I could not help but be once again disappointed with the exclusive focus on product and technology innovators on the list and the lack of Business Model Innovators. Why?  I think first and foremost, it is very easy to “see” new products and technologies: when one sees a new iPhone or iPad it is quite easy to tell that this is a new product.  On the other hand, new Business Models can be operated by companies for many years before anyone takes notice. Just think about Toyota – for many years US automotive companies did not think it was a threat and they dismissed famed Toyota Production System as a local Japanese phenomenon. Nobody doubts its advantages now.  Likewise, Dell revolutionized production of personal computers but it took at least 10-15 years for other computer manufacturers to realize why and start emulating Dell’s production to order system.  Second, very often the word “innovation” is associated in the minds of managers with new products and technologies, rather than with new business models.  This is the reason we started our blog about business model innovations.  Finally, even if one believes in innovations without new products and technologies and somehow “sees” a company doing something differently, I believe managers are generally much more comfortable evaluating new products than new business models, even though, in my experience, new products and technologies are much more likely to fail. Of course, these very facts that make business model innovations less visible, also makes them more of a sustainable competitive advantage! But back to the list which does contain a few Business Model Innovations which I would like to highlight.

Making Cars Electric, One Country at a Time

Posted on February 25, 2012

Not that long ago, I talked about one of the most interesting startups I know of, an Israeli company called Better Place, which has the promise to accomplish what 170 years of technology innovation failed to achieve. What I am talking about is the elusive dream of electric vehicles and the constant struggle of word’s best scientists to combat two basic issues with electric vehicles: the range anxiety and the high cost of batteries.  Better Place has recognized that, where technology has failed to improve the world, a different kind of innovation is needed: a business model innovation which uses the same battery technology but fundamentally changes allocation of risks between the company and the customer, a true example of Renaissance Innovation.  There were several recent updates on this innovative company which I wanted to discuss. First, the company received Series C financing from GE and UBS which values the company at $2.25 Billion. Second, 100 vehicles were leased through a car rental company in Israel, marking first large-scale deployment of the concept.  And third, Better Place experience center opened in Guangzhou, China.  While I am quite enthusiastic about first two news, the third one I find less exciting.  The reason for some reservations about expansion to China is a recent paper which I co-authored with Karan Girotra and Buket Avci, “Electric Vehicles with a Battery Switching Station: Adoption and Environmental Impact“.  But let me discuss the news one-by-one.

The Henry Ford of Cardiac Surgery

Posted on February 15, 2012

Cardiac surgery is a sophisticated, dangerous and delicate procedure; but an Indian surgeon and his hospital group have successfully transformed  it into a factory style mass operation, bringing high quality care to the many millions who could never before afford it. Dr. Devi Shetty’s  Bangalore based flagship, 1,000-bed Narayana Hrudayalaya Hospital,  charges $2,000, on average, for open-heart surgery, compared with hospitals in the U.S. that are paid between $20,000 and $100,000, depending on the complexity of the surgery. Narayana Hrudayalaya reports a 1.4% mortality rate within 30 days of coronary artery bypass graft surgery, one of the most common procedures, compared with an average of 1.9% in the U.S. in 2008, according to data gathered by the Chicago-based Society of Thoracic Surgeons. This despite the fact that many of its  patients are much higher risk– the patients often lack access to even basic health care and suffer from more advanced cardiac disease when they finally come in for surgery. How does this doctor achieve the holy grail of all products– a better quality product at a lower costs?  At the heart of this lies  one of the oldest business model innovations and its application to cardiac surgery.