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An article in the Wall Street Journal today described how a startup company called Cuil Inc. has assembled a “dream team” of engineers to try to dethrone Google Inc. Odds are that Cuil (pronounced "cool") ends up like the seemingly unbeatable team of NBA players that finished sixth in the 2002 FIBA world championships.

Cuil’s search engine launched today. It claims to cover three times the number of Web pages that Google covers (in trial runs this morning it ran very slowly and found nothing under my name!), and displays its results like a magazine. President and co-founder Anna Patterson, an engineer who helped build Google’s search index, told the Journal, "You can't be an alternative search engine and smaller. You have to be an alternative and bigger."

To top Google, Cuil built a top-flight team of engineers with search experience at eBay, IBM, AltaVista, and, of course, Google. It is backed with more than $30 million of venture capital.

Cuil is playing a dangerous game. ...

Read the rest on Scott's Harvard Business blog, Innovation Insights.

I love accountants. Heck, my grandfather is in the Accounting Hall of Fame (I’m not kidding, check out the Web site). But when I see an article pairing an acquisition of a company with a widely lauded culture with plans to achieve substantial cost savings, my blood runs cold.

The article in question described Roche Holding AG’s $44 billion bid for full ownership of Genentech. For close to 20 years, Roche has masterfully managed a controlling economic interest in the biotech pioneer. One key to success has been allowing Genentech to follow its own course and reaping the benefits of products that would never have come out of Roche’s labs.

Today, Roche hopes that tighter integration will help to spur its own development process. And, of course, it hopes to achieve substantial cost savings “by combining the two companies ‘ clinical research teams and sales, manufacturing, and administrative departments in the U.S.”

So-called cost synergies make perfect sense — on paper. Through an accountant’s eyes it appears wasteful to duplicate functions that perform the same basic task.

What’s hidden however is how combining functions can destroy what’s unique about a company.
 

Read the rest on Scott's Harvard Business blog, Innovation Insights.

By Rebecca Waber

Recently, I took a vacation to Europe with my little brother, a trip I was determined to keep inexpensive despite the weak dollar. This goal turned out to be particularly difficult in Stockholm, where a McDonald’s value meal will set you back $11. Because of the prices, I took a local friend’s suggestion and booked a private room in a youth hostel. Never having stayed in a hostel before, I was unsure about what this cheap alternative would be like.

Actually, it turned out to be a great experience. It was a comfortable, perfectly “good-enough” place to sleep. I began to reflect upon what one gets from staying in a hotel.

It occurred to me that I was perfectly happy without a maid’s “turn-down service” and a private bathroom, and that for a vacation like this, a traditional hotel overshot my needs. What’s more, I discovered that I valued the benefits along new dimensions of having access to a kitchen and being in a casual, friendly atmosphere.

I think the important lesson here is that until I became aware of and experienced a hostel as a potential “European trip lodging solution,” I didn’t realize that I was overshot by hotels, and I didn’t realize that I valued the new ancillary benefits offered by hostels.

I felt surprised and delighted to find a solution that was a better fit than I even knew existed, but I couldn’t have articulated this solution, or even the need for a new solution, beforehand. This is part of why it’s largely impossible to calculate the size of a market that doesn’t yet exist — it’s hard for an individual person to know, a priori, their precise requirements and desires when it comes to different aspects of performance.

And yet after finding that a particular solution is a perfect fit, a person can retrospectively see where in the market spectrum they fall. This is why the task of uncovering the fundamental jobs-to-be-done in a given market context tends to require sophistication and multiple research approaches.

Ultimately, my hostel experience makes me wonder what other, potentially disruptive solutions out there might be a better fit for me than the one I’m using, that I just haven’t experienced yet! Companies that are able to intuit what consumers value, but are unable to articulate, hold the keys to innovation success. 

At some point during the past few years, Adobe’s Flash technology became one of the most often used formats to encode streaming video on the Internet. From its start as a niche animation tool in the mid-1990s to one of the top streaming video formats today, Flash has followed a decidedly disruptive path, taking market share away from all traditional streaming video format heavyweights.

In the late 1990s, as Internet connections became capable of carrying streaming video content, a format battle arose. RealVideo, a purpose-built platform designed to handle the challenges of Internet streaming, quickly captured dominant share. Windows Media, despite the inclusion of its player within all Windows-based PCs, lagged far behind, slowed initially by poor video quality and streaming capabilities. Finally, despite offering the highest video quality, Apple’s Quicktime format lagged Windows Media’s share, suffering from a lack of promotion, the need to download and install a player application, and niche ownership of Macintosh computers.

A few years prior to the format wars of 2000, San Francisco’s Macromedia acquired a vector-based animation package, FutureSplash, and rebranded it as its Flash product. Flash was easy for novice and experienced developers alike to use, and its applications and animations could also be easily compressed to a small, Internet-friendly file size. As Flash applications and animations began to pop up throughout an increasingly interactive Web, Microsoft agreed to bundle the Flash plug-in within Internet Explorer 5. By 2000, it was being distributed within all AOL, Netscape, and Microsoft web browsers. In 2002, it shipped within all releases of Windows XP for an installed base within 92 percent of all Internet-connected PCs.

Initially, Flash was a format perfect for interactive applications and animations, but could not be used for the encoding of video. Over time, however, as the Flash platform evolved, it became capable of supporting increasing content frame rates. Soon, the line began to blur between animation and video. In 2002, after the release of new capabilities within Macromedia Flash MX and Flash Player 6, Flash’s broad installed base compelled developers to begin to use Flash as a format for encoding video. While its video quality lagged that of incumbent formats, Flash was “good enough” for some web video content, particularly in light of the fact that the majority of users could consume such video without needing to download and install a separate player application — a big plus.

Over the last six years, and more recently under Adobe’s ownership, Flash adoption has grown dramatically. Today, television channels including CBS, NBC, CNN, and ESPN, along with user-generated content sites such as YouTube, MySpace, Google Video, and Yahoo Video, all encode their videos using Flash. CBS.com, for example, is also just one example of many sites streaming Flash video 720p HD. According to a report published in April 2008, Flash-powered online video websites are now responsible for substantially more than 91 percent of online video traffic. While RealNetworks' RealVideo, Microsoft Windows Media, and Apple Quicktime remain players in the world of online video, Flash has clearly taken the lead.

Since its acquisition and re-launch by Macromedia in 1996, Flash has followed a classic disruptive trajectory through the world of streaming video. Its initial foothold, the world of web-based animation, provided a perfect niche for Flash to incubate. Bundled within all major web browsers, Flash then hitched a ride on a dynamite distribution mechanism, finding a home within 98.45 percent of all Internet-enabled PCs as of June 2008. Improvements to Flash technology, combined with its installed base, next enabled it to move up-market, tackling increasingly complex content until the line between animation and video was gone, along with the lead that had been enjoyed by the streaming video format incumbents.

I have to give credit to the folks at advertising agency Modernista! for dismantling the company’s existing website in favor a “site-less” approach. In this disruptive move they’ve done much more than simply save on site design.

By foregoing the breadth of information available on a traditional site, they focus viewer attention on the company’s art and creativity. It’s a big win (and just plain cool).

The company’s new homepage consists only of a small menu that floats over the viewer’s referring site or over the Modernista! entry on Wikipedia. Click on the “Print work” menu tab and you’re directed to the company’s work as presented on Flickr; click on “TV work” and up pops a You Tube page with videos of Modernista!-created ads.

This new approach is different, budget and very simple. To many, it would be a leap down in terms of the traditional metrics that define good website design. The company’s “conventional” website was a resource-intensive, complex site that resembled a kooky (yes, I said it) haunted house. It was impressive yet overwhelming, flexing the firm’s creative muscle with more animation than most viewers could handle. The new site is perhaps less user-friendly for those expecting a traditional website structure, and offers less context for the depicted company work. The new format could also yield negative user-generated critiques of Modernista!’s work on the social media pages that serve as its website.

The trade-off for these drawbacks? A cleaner site that demonstrates the firm’s creativity, confidence in letting its ads speak for themselves and comfort incorporating Web 2.0 platforms in its work. The site has generated more blog traffic and buzz in a wider range of forums than a traditional website with fancier features would have done, with this blog post as a case in point. Isn't that the goal of a website as a marketing tool? And the move isn’t one that other leading advertising agencies are likely motivated to follow. Voila! Disruption.

But that’s just the web site. The real disruption will be if Modernista! applies a similar leap-down approach in developing client advertising campaigns that have worse performance on some traditional dimensions but are, perhaps, simpler and more affordable relative to conventional advertising.

Last year on my previous blog IdeaFlow, I reviewed Jack’s Notebook by Gregg Fraley, a book with the intriguing subtitle “A Business Novel about Creative Problem Solving.” This week I had the opportunity to revisit the book, and Gregg, as part of the Post2Post Virtual Book Tour.

While telling the story of Jack Huber’s rise from under-employment to starting his own business, Jack’s Notebook takes the reader though the steps of the powerful yet sometimes elusive Creative Problem Solving Process (CPS), a meta-model for thinking and problem-solving that’s been around for about 50 years. CPS training is most commonly taught at the CPSI conferences put on by the Creative Education Foundation [note: I learned the process at CPSI five years ago; my IdeaFlow posts on various CPSI conferences are here].

Herewith, my conversation with Gregg about Jack's Notebook and creativity in corporations:

Q. It’s been 15 months since we last talked about Jack’s Notebook. What has the response been, especially from business readers?

A. As far as sales go, it’s been fair and remains steady. As far as what people say, it’s been great. There haven’t really been any bad reviews. As far as business goes, I had one Fortune 100 client who bought a copy for everyone in her department. I heard later on that one person had an epiphany as a result.

Q. Why do you think that was?

A. Creative thinking offers transformational possibility, both personally and for a business. My mantra is that creative processes and sophisticated methodologies are wonderful things, but creativity itself is where the rubber meets the road in day to day behavior. You could be an expert in TRIZ and still not be thinking creatively on a day-to-day basis.

I’ve got another story, about an engineer working on his PhD degree. He emailed me that he had started carrying around a notebook in which he did daily brainstorming and then convergence [note: the main two steps of the CPS process are divergence and convergence]. He told me it had changed his life, and he said that that daily work had helped him start his own business.

Q. When you do hear criticisms from business readers, what do they say?

A. One of the criticisms has been that this is not a classic business book. I actually agree with that. It wasn’t written that way. It’s not directly related to a specific corporate challenge, but more a fundamental business skill — creativity. And that skill will bubble up if you practice.

Q. Speaking of skills, when you work through CPS with corporate clients, what’s the place where they generally have the most trouble?

A. Definitely, in reframing challenges. Most people are resistant to reframing because they think they know what the problem is. Sophisticated business managers can be stumped by the tools and techniques that allow team to see things from a different perspective. And how you frame a problem has everything to do with how you solve it. Setting up “guardrails” can get people thinking the wrong way.

Q. In my experience it’s important to use something like guardrails to frame a problem in order to come up with the most creative solution within the constraints of the business objectives.

A. It depends on whether you are working on new product that’s simply a line extension, or on a breakthrough. For example, I worked with a company that was trying to come up with a new dessert, and all the ideas were simply variations on existing desserts. It wasn’t until we reframed the problem as “In what ways might I own the after-dinner occasion?” that we started coming up with breakthrough ideas.

Q. Oh — that would be a framing that’s similar to our JOBS lenses, where we work to understand what job the customer is actually trying to do, and frame the challenge in that way.

A. Right.

Q. So, how creative do you think business people have to be in order to come up with breakthroughs?

A. The right person can be incredibly meaningful. Look at Steve Jobs. Look at Jonathan Ive, who designed the iPod and the iPhone. When you look at the iPhone and compare it to what Sony, Motorola, etc., have come up with, it just looks so much better — and that’s one guy. The average Joe Blow isn’t going to do that.

However, that doesn’t mean that the average corporate manager, if they stick to a process, can’t deliver meaningful incremental innovation. And I believe average people can do amazing things, with the right motivation and a good process. And passion means a lot. If you combine passion and motivation with a process, breakthroughs are definitely possible for anyone.

Q. Jack isn’t motivated or passionate at the beginning of Jack’s Notebook.

A. That’s right — he’s actually depressed. People get flat because of lack of hope. What motivates him is hope. And hope comes from thinking in a little different way. It goes back to reframing. If you ask the brain a question, it wants to give you an answer. If you give it an open-ended statement — such as, “in what ways might I _______”  — the brain will reconfigure it a million ways.

Recognizing you’re in a hopeless mess is often where problem-solving begins. Another common first step is recognition of fear and facing of fear. Sometimes rules have been around corporations so long, no one's left who knows why they exist — they’ve been around for years. And as a result, people get into traps and beliefs that could be changed, except for their fear of challenging the rules.

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One of the benefits to being scheduled toward the end of the book-tour week is that I can link to previous stops on the tour. The other virtual-tour-stop blogs have had varying focuses, so if you’re interested in Jack's Notebook you might want to see what’s been written about it from other perspectives:

• The Naked Idea (charities and nonprofits)
• Education Innovation (education)
• Marketing Fresh Peel (branding)

“Why bother?” That was the question posed by a manager after hearing me describe how very hard it is for even the best run incumbents to successfully create new growth businesses. “If historically the success rate has been less than 20 percent,” the manager continued, “shouldn’t I just leave this game to start-ups?”

It is a provocative question. After all, markets often punish companies that diversify into non-related industries, because individual investors can get the benefits of diversification by investing in different industries themselves. Are companies similarly wasting their time — and their investors’ money — when they try to invest in innovation?

Maybe established corporations should solely focus on exploiting what already exists, leaving the creation of what doesn’t to start-ups. Of course, not investing in innovation ultimately will consign a company to failure, but hey, that’s what creative destruction is all about.

There is no doubt that the innovation struggles of incumbents lead to significant waste. Companies spend billions of dollars developing fatally flawed products and services. They give advertising agencies billions more to convince people to want things that they really don’t.

An inefficient incumbent innovation market has spurred the ascendancy of the venture capital industry. Venture capitalists earn substantial fees attempting to fix this market inefficiency by providing capital to startups. Similarly, growth-seeking incumbents pay investment bankers handsome fees to advise them on acquisitions to plug the growth holes created by their innovation struggles.

However, we strongly reject the view that incumbents should eject from the innovation game. Incumbents have tremendous assets at their disposal. They have whip-smart developers with ample resources to invent cool, new things. They have economies of scale that can help them operate efficiently. They have partnerships that can help accelerate the development and deployment of new growth initiatives.

Read the rest on Scott's Harvard Business blog, Innovation Insights.

The iPhone 3G hogged its share of the spotlight over the weekend. The “twice the speed, half the price” phone sold upwards 1 million units over the weekend. But while most of the spotlight was focused on the new phone itself (and the difficulties experienced during the launch), I believe time will show the iPhone App Store — a iTunes-integrated online store that allows consumers to easily install a seemingly endless variety of games, utilities and other applications — was the Apple release most deserving of the weekend spotlight.

The new features (3G antenna, standard headphone jack, etc.) are improvements, don’t get me wrong. But they are the sort of sustaining improvements that customers expect, and they don’t exactly break new ground. I doubt whether these features alone can propel the iPhone to the level of success that Apple’s other “i” product has achieved. (If they could, you’d see a lot more buzz about the LG Dare and the Samsung Instinct).

It is the App Store that adds features in a disruptive way that other phones can’t match. With it, the Apple finally gives consumers a way to conveniently add third-party programs to their phones. (I’ve used both Palm OS and Windows mobile devices and can testify that until now this has been neither a quick nor a convenient process). In the same way that the iTunes music store made the iPod much more than another digital music player by allowing the consumer to easily buy, organize, sync and play music, the App Store makes the iPhone more than another smartphone. It turns it into a computer in your pocket, ready to be customized with the applications that you want.

How significant will the effect of the App Store be? Well, if the history of the iPod before and after iTunes is any guide, the effect will be enormous.

Prior to the release of iTunes in April, 2004, no more than 1 million iPods has been sold during any quarter. After it was released for Windows in October of 2004 (it was a Mac only release for the first few months), at least 4 million iPods (and as many as 22 million!) have been sold every quarter.

Of course, there are differences. Consumers already had well-established habits relating to buying and listening to music that the iPod + iTunes could build on. Similar habits relating to the use of third-party applications on mobile devices may not be as prevalent. And this time, the competition isn’t as far behind. Google is hard at work pushing its own mobile platform, Android, with headset makers and application developers (and might even be developing a Google phone). Also, incumbents like Nokia, which acquired Symbian recently, aren’t sitting still either. Both may be able to offer consumers devices that are as flexible and application ready as the iPhone in the near term.

In the face of these challenges, it will be interesting to see whether Apple will be able to repeat the success of the iPod. It is doing plenty right. But will it be enough?

There’s little doubt that today’s economic environment is tough for just about every company. Hardly a day goes by without news of layoffs, plant closings, or even companies shutting down.

One of the latest companies to file for Chapter 11 bankruptcy protection is Steve & Barry’s, a retailer whose low prices had driven substantial growth over recent years.

The company’s leaders pinned the blame squarely on the economy. “The generally poor environment for apparel retailers has reduced funding to our suppliers, landlords, and to our company,” said founders and co-Chief Executives Steve Shore and Barry Prevor. “It has become increasingly difficult for us to continue operating normally under these circumstances.”

Did the current economic climate hurt the company? Of course. Is it the reason the company needed to seek bankruptcy protection? In my opinion, no. The company’s struggles indicate a failure to develop a fundamentally solid economic model.

Read the rest on Scott's Harvard Business blog, Innovation Insights.

Stuttgart is “going green.” The German city recently signed a letter of intent with Ultra Motor to implement an infrastructure to support eco-friendly scooter-bikes. Launch is expected in 10 months and the idea is catching on; according to BusinessWeek, Ultra Motor is currently in negotiations with 12 other major European cities.

Driving this effort is Ultra Motor’s new A2B Light Electric Vehicle (LEV) — a scooter-bike with a conscience. The tagline even has an anthropomorphic ring to it: “The heart of a bicycle. The soul of a scooter.”

Experience LEV technology: Hop on a comfortable seat surrounded by a lightweight, aluminum frame. Enjoy as much exercise as you choose by pedaling or cruising at 20 mph. Want to ride further? The standard range of 20 miles can be extended to 40 with the addition of a lithium ion battery pack. New technology provides one-third more force than electric motors; helpful when ascending hills or darting through traffic. A dashboard indicator signals energy remaining. Dwindling charge? Simply plug in.

Current customers of the A2B vehicle include commuters, students, employers, fleets, and local authorities. However, through our lenses, jobs define the marketing strategy and are linked to attributes:

Social job: “Have a positive impact on the environment”
The A2B is a zero emissions mode of transportation, powered by a lithium ion battery. The vehicle efficiently functions at approximately one-tenth the running cost of a gas-powered scooter.

Emotional job: “Allow me to enjoy my commute”
The rider is able to enjoy the outdoors and a quiet ride. The extended driving range provides freedom and the vehicle is easier to handle than a gas-powered scooter. Modular storage options are also available.

Functional job: “Provide a way for me to reduce transportation costs”
Savings are self-evident — no gas required. The A2B model is currently available in 20 states across the U.S. for about $2,200. In Stuttgart, a monthly subscription will cost $23; a mass transit pass costs $84.

In the spirit of business model innovation, Ultra Motor is exploring new networks of transportation, one of which will be utilized in Stuttgart. The “LEV City Initiative” outlines this potentially disruptive system featuring charging stations; purchase a subscription, locate a station, swipe your card and enjoy the ride.

We applaud Ultra Motor for encouraging consumers to “go green” in new ways. Learn more from the source at www.ultramotor.com. You’ll notice as the website loads, the screen cleverly notes: “Charging up.”

A front-page article in yesterday’s Wall Street Journal illustrated how important it is to periodically revisit the assumptions behind an idea.

The article described how several years ago, the head of Sacramento’s regional planning agency started to push developers to concentrate growth in defined areas rather than furthering suburban sprawl. The argument hinged on lowering pollution and fostering economic development.

Of course, with the price of oil shooting up, today the idea looks remarkably prescient.

I wonder, however, how many planners rejected similar ideas because they couldn’t imagine people making living decisions based on the cost of commuting, and how many now wish they started dusting off those rejected plans when signals emerged suggesting that circumstances had changed.

On the other hand, sometimes circumstances change in ways that undermine ideas that once seemed credible. Consider Motorola’s daring, and ultimately doomed, venture to provide satellite-driven mobile telephony.

Read the rest on Scott's Harvard Business blog, Innovation Insights.

A brewing discussion about Starbucks’ new coffee flavor highlights a challenge facing innovation-seeking incumbents: Which customers should we listen to?

As part of a broader effort to reinvigorate the company, Starbucks recently rolled out a mild-tasting coffee called “Pike Place Roast.” It has quietly moved away from offering bolder-tasting coffees, such as its Sumatra brand, particularly in the afternoon.

Starbucks brought Pike Place Roast to market in response to complaints from Consumer Reports and others that its coffee tasted bitter or burnt. A small group commercialized the brew in six months—an astonishingly short period of time in the food industry.

While Consumer Reports and the mass-market has cheered, a vocal group of core Starbucks loyalists panned the coffee—one reviewer on a Starbucks Web site designed to solicit customer feedback called it a “fundamental, grievous error”—as watered-down and away from what makes Starbucks distinct.

Incumbents seeking to create new growth often face a version of this dilemma. Should we listen to our best, most loyal customers, or should we turn our ears towards customers we’re not serving well, or even to customers we are not serving at all?

Read the rest on Scott's Harvard Business blog, Innovation Insights.

Today is the official launch of The Innovator's Guide to Growth, so in addition to Amazon, you should be able to find it now at your local live-action, in-person bookstore. To recap: this Harvard Business Press book is the latest in the series exploring disruptive innovation that was started by Clayton Christensen’s The Innovator’s Dilemma in 1997 and continued in Christensen’s The Innovator’s Solution in 2003. The Innovator's Guide to Growth was written by Innosight's president Scott D. Anthony, co-founder and chairman Mark W. Johnson, and partner Joseph V. Sinfield, along with Elizabeth J. Altman, vice president of strategy and business development in Motorola’s Mobile Devices business. The book has a foreword by Clayton Christensen that can be downloaded free here.  HBP marked the occasion today by issuing a press release that features links to goodies such as video interviews and the book's Facebook page.