Shared Secrets – Entry #11: The Octopus
This is the eleventh in the series on managing collaborative innovation. Click here for the Beginning of the Series
Anyone who has traveled on mass transit in Hong Kong since 1997 would have run across an odd looking terminal sporting the name ‘Octopus.’ The Octopus system uses wireless smart cards from Sony to allow travelers to store money and pay turnstile fares without even taking the card out of their handbag or pocket.
In 1996, a group of transit authorities in Hong Kong – trains, ferries, busses – decided to install the cards as a payment system for all forms of Hong Kong transportation. This touched off a series of highly kinetic, highly disruptive changes. First, the Sony card filled the technical gap in an intention to bring the city’s various transit authorities together in a coordinated framework. Today, Octopus Cards Limited, which runs the system, is a joint venture of the major transit organizations in Hong Kong, including MTR, KCR, KMB and CityBus. Today they are organized and coordinate through the crucible of the Octopus system. Each of them employs a different kind of business model, each has subtly different intentions, but they connect at this point into something bigger, more profitable, and more useful for commuters.
Shortly after the Octopus system was being used widely by Hong Kong travelers, a new set of players appeared. These people had nothing to do with transit. They were grocers, coffee shops, soft drink vendors, even charities. Their novel intention: use the system to make it easier to pay for their products and services. Before long Octopus transaction terminals were proliferating all over Hong Kong. Park ‘N Shop, 7-Eleven, Starbucks, McDonalds and Circle K all use the Octopus system. As of 2005, the transactions on the system had risen to a daily sum of HK$50 million (about US$6 million). More importantly, and largely thanks to the non-transit vendors using the Octopus system, consumers were storing larger and larger amounts on their cards. When large numbers of people store large sums of money with a single organization, you no longer have a transit authority. You have a bank.
The Hong Kong transit authorities employed a wide variety of consultants and contractors on the Octopus project, and this proved to be important. The insight that there was an opportunity to add banking to the Octopus business model was not necessarily obvious. Fortunately, there were experts still around on contract who knew the banking business from other consulting projects, and they saw the opportunity when it appeared. Octopus applied for a banking license in January, 2003.
Today, Octopus makes more on the interest and investments they manage from unspent stored money of card users than on operating trains and ferries alone. Their economic model – their very business concept of how they make money and the competencies they must maintain to stay in business – is fundamentally different from where they started in 1996 as a group of transportation managers. Is Octopus Cards Ltd. a bank or a transit authority? It would likely not compete well against the incumbents as a pure-play bank, and it would be unlikely now to strip the banking model from its transit business. It is a hybrid.
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Shared Secrets – Entry #10: Smelling the Java
This is the tenth in the series on managing collaborative innovation. Click here for the Beginning of the Series
In the mid-1990s, individual programmers, first-line managers and enthusiasts from companies ranging from GE to Citibank began attending conferences on a new industry strategy, an open programming language called Java. The notable thing about this was that in the early days, Java was not a strategy at all. The company that invented the language, Sun Microsystems, took a long time itself to recognize Java for the industry-changing innovation it was. The massive movement – there are at least three million Java programmers today – seemed at first to self-organize. There was no clear leadership, hardly an agenda, and no real money from any of the major players, including Sun.
But using miniscule travel budgets and spare time, sometimes even using personal funds, thousands of employees from hundreds of companies began showing up at Java gatherings. Smart companies that respected employee intentions tracked the small moves, saw the direction things were heading, and got behind Java while others found themselves backpedaling as the wave swept over the IT industry. The collective power of these front-line employees caused the fiercest of competitors – Microsoft, Apple, Sun, IBM and many others – to work collaboratively, at first with virtually no executive involvement or legal agreements. Several of these firms went on to spend hundreds of millions contributing to a technology that was invented and largely controlled by their rival, Sun Microsystems.
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Shared Secrets – Entry #9: Where did we put all those intentions?
This is the ninth in the series on managing collaborative innovation. Click here for the Beginning of the Series
Every company collects and manages intellectual property in different ways. And just as with inventions, there is no single way to manage intentions (see earlier posts in this series about inventions versus intentions). There are methods that attempt to gather written-down intentions, but each of these runs into different problems. The most common problem is the same one that prevents most people from maintaining a good to-do list – even the tiny amount of time and effort required to write things down is often just too much for a busy person to bear.
It helps to piggy-back intention management on activities that are already required and accepted. In some companies, the best that can be done is to add intention details to the invention disclosure process. A common related activity that extends beyond inventors filing patents would be employees lodging their key performance indicators (aka, personal business commitments). Many firms have deployed online portals for employees to manage their performance commitments, their vacation schedules, their 401k, and other details. If the portal asks the right questions when the employee is filling out performance commitments, that information is a ready-made set of employee-driven data on emerging intentions. In order for this to work, though, there must be an opportunity for the employee to list not only what they commit to do but what they would intend to do if given the chance – even if they know it is outside their current responsibilities. And for this to work, the option to lodge these intentions anonymously is crucial.
Regular innovation events of various kinds are an accepted part of the culture in some firms and can be a means for collecting large sets of intentions. A variety of online tools that are available for managing these events could be modified to collect intentions as well. IBM’s WorldJam, for example, started as an online internal idea “festival” and has now been extended to include partners, customers and other external parties. Best Buy and other companies maintain programs where anyone in the firm who wants to have a chance to start something new can get a small amount of time and resource to try it.
All methods must be painstakingly tailored for an organization’s unique culture, and even then they only paint part of the picture. The very best managers and executives use their sense of small moves occurring throughout their organization as a key indicator of emerging intent. They give employees from the top to the bottom of the company specific levels of autonomy and see what they do with it. This can be formalized into venture funds, incubators, programs like Royal Dutch Shell’s Gamechanger and IBM’s Extreme Blue initiatives. Or they can be as limited as a $1000 discretionary travel budget. The key is ensuring that the trend data from all these sources get to the right decision-makers.
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Shared Secrets – Entry #8: Connecting the Gaps
This is the eighth in the series on managing collaborative innovation. Click here for the Beginning of the Series
The most important aspect of an intention (see previous post), beyond the champions themselves, is the set of gaps standing between what the champions can do and what they want to do. Gaps come in three flavors: technical, commercial, and organizational. A technical gap is the lack of tools, techniques and know-how that would make a plan feasible. This is where an invention connects with an intention to create an opportunity.
Where technical gaps are about the tools, commercial gaps are about the story. The champions must have a compelling story about how their intentions are feasible and how they will have a positive economic impact. This is where the business design is articulated. An intention’s commercial gap can be filled by the presence of another intention. For example, were it not for the intentions of new philanthropic organizations like the Bill and Melinda Gates Foundation to fund hybrid not-for-profit operating companies, OneWorld Health’s intentions to focus on low-margin drugs might run into a significant commercial gap in their financial story.
Finally, organizational gaps define the social distance between the champions and people with the ability to fill technical and commercial gaps. Organizational gaps also include the problems created by many intentions bumping into each other within firms. In the Google case (entry #7), the organizational gap for the Clever team arose because the champions could not overcome a bureaucracy of higher-ranking decision-makers whose own intentions would have been harmed if they had moved forward.
It is tempting to add the notion of resource gaps to the list, because the first thing most champions will tell you is that they need more financial and human resources. But if a champion doesn’t have enough money or people, then something else is wrong. Either the commercial story is not convincing people with money to provide it, or something separates the champions from the people who would give them resources if they heard the story. The former case involves a commercial gap and the latter an organizational gap.
Champions, stakeholders, goals, and gaps: Shared understanding of this short list of concepts and how they interact can be remarkably powerful. Predicting action – and to some degree ultimate success – becomes a matter of weighing the dedication of the champions against the gaps they face. Finding a cure for cancer is a goal that lines up some of the most daunting technical gaps imaginable against a world of scientists and medical champions whose dedication to bridging those gaps is equal to the task. Given enough time, the smart money is on the champions. On the other hand, the negligible challenge of creating a search engine web site was too much for the biggest computer company in the world even though it had the technology and marketing muscle to trump Google’s entry with hardly more than a few months’ work. The Clever project champions’ desire to get their technology used was not equal to the task of overcoming IBM’s organizational gaps.
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Shared Secrets – Entry #7: Searching for Intent
This is the seventh in the series on managing collaborative innovation. Click here for the Beginning of the Series
In 1998, I met a Stanford student who had written a paper called “The Anatomy of a Large-Scale Hypertextual Web Search Engine.” The paper described an invention he called the PageRank algorithm. At the time, IBM had published findings on a similar technology, which it called ‘Clever’. Both inventions did, in a very general sense, the same thing: crawl the World Wide Web, index web pages, and generate better search results based on the number and sources of hyperlink references to each page.
It was suggested that this student come to work for IBM and get a job in research on the Clever team. But he and his colleague had other ideas. They decided to build a web site on their own, something they could afford to do at that early stage in their careers on the back of a little seed money. They intended to create a self-standing resource for organizing the world’s information and making it universally accessible. As the last section of their paper indicated, they also intended to overcome the problem of clutter and conflict-of-interest caused by the dominant advertising driven model of the day’s search engine web sites. For this, they got seed money and collaboration from some of the smartest venture capitalists in Silicon Valley.
In the meantime, IBM remained unclear what to do with Clever. The problem involved a key organizational gap. The researchers working on Clever intended to get the technology used in IBM products and services. But the most obvious market play, to create a web search site, did violence to a much deeper IBM intention: avoid direct competition with companies that buy IBM technology – like search engine companies. For a time, spin-offs were discussed, and IBM remained open to licensing Clever. But ultimately there was no stomach for an IBM search engine company, and several researchers wound up working for, among others, those two Stanford students, Google’s Larry Page and Sergey Brin. If you believe that Google has changed the world, it is undoubtedly not simply their inventions but their innovative intentions that should be credited. Their technology was only ‘table stakes’. Their intention to build a real business with a novel perspective on search – something you can not patent or protect – got them to a place that Big Blue could not approach even with much more ‘technology’ in their pocket at the time.
Disclaimer: Others may remember things differently or have a different interpretation of events. The account above is how I remember the experience and what I learned from it.
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Shared Secrets – Entry #6: Managing Intent
This is the sixth in the series on managing collaborative innovation. Click here for the Beginning of the Series
The first step in establishing effective ways of sharing intent is to have good practices for managing it internally to begin with. It is crucial that firms start handling their emerging intentions as rigorously as they handle their inventions. Today’s intellectual property management systems collect and track invention disclosures from initial discovery through patenting and licensing. They now have a new job to do. Where a scientist is trained and required to file invention disclosures, there must also be training and requirements for employees to lodge and track intent. But because intentions are much more dynamic and intangible than inventions, managing them requires creative methods.
A typical invention disclosure first identifies all individuals that contributed to the idea. These are the inventors. Then it requires the inventors to provide an abstract, make claims, describe the assembly or process, and identify all cases of its communication to others. So an invention is composed of several elements, starting with the inventors themselves.
Intentions are also composed of elements, starting with champions. Champions are the ones who complete the statement, “Given the chance, I intend to…” Champions develop a level of dedication toward their intention, which is best described in terms of how much they would give up to pursue it. Nearly all intentions compete for time and attention. Therefore, champions at the very least give up focus on other matters to pursue a specific intention.
In addition to champions, there are stakeholders – supporters and resistors. Stakeholders have something to gain or lose when champions pursue an intention, but they don’t necessarily have to take action or make sacrifices as champions do. Whether stakeholders are active or passive, a well-formed intention identifies as many as possible.
Intentions have one of two types of goals: to overcome a problem or to capture an opportunity. An intention may simply be to capture a new market or overcome a competitive disadvantage. The champions may also be the inventors listed on an associated patent, if they intend to use the technology strategically.
Stephen Fodor, inventor of the gene chip, did more than simply invent a revolutionary technology for analyzing gene expression. He also formed an intention to start a company that made and sold gene chip machines. He founded Affymetrix as a spinout of Affymax, the company he was working for at the time. Like Adobe, he evolved a business model through smart collaboration that today combines scientific equipment manufacturing with a consumables business. But he might have formed a different intention that would have led to a business that didn’t sell machines or consumables but rather sold a gene analysis service. Or he might have simply sold the IP to someone else (as many universities try to do) or elected to build the offering within Affymax instead of spinning out. Each of these different business models spring from different intentions.
It’s worth noting that an invention does not always come with an associated intention. A colleague recently filed his 129th invention disclosure at his company. The technology was potentially useful in a wide range of applications. But his intentions stopped with the filing, the monetary reward he received from his company for each patent, and the respect of his peers – at least those who only had 128 filings. It was an invention without an intention. And it sits on the shelf today.
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Shared Secrets – Entry #5: Crossing the Border
This is the fifth in the series on managing collaborative innovation. Click here for the Beginning of the Series
Despite its risks, collaborative business model innovation is all about sharing intentions with outsiders. We do this to fill gaps, create win-win opportunities and shape emerging intentions into something more than we would have imagined on our own. But we also risk harmful exposure. It is a delicate game, and historic forces are opening it to a wider range of managers and personnel than ever before.
Increased worker mobility, decreased corporate loyalty, and community systems that cross company borders (such as Skype, MSN, and Wikipedia) make it more likely than ever that your deepest inner secrets are going to show up on someone’s internet blog before you have written them down for yourself. In this environment, executives, management and staff need a common framework for knowing when and how to share emerging intentions with outsiders. This is not to stop the flow of knowledge to the outside – that would be like putting a finger in a cracking dam – but to control it and take the most advantage from the inevitable.
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Shared Secrets – Entry #4: When Open Innovation Doesn’t Work
This is the fourth in the series on managing collaborative innovation. Click here for the Beginning of the Series
There is a grey area between early stage research and the market play where intentions start to emerge from new ideas but have not yet become committed strategies. It is the moment when champions begin to muster the willpower to take action but have not yet made specific plans or worked out all the gaps. This is a particularly difficult stage for sharing with outsiders. Open sharing is feasible at the fuzzy front end of technology R&D, where patenting and publishing help disseminate information about new discoveries. Likewise, open sharing is a natural function of the latter market play, where evangelists, marketers and sales people spread the word about the company’s new strategic direction. But at a crucial time when external insights could validate an emerging direction (or nip one in the bud) and when external know-how could make seemingly impossible plans suddenly feasible, we find ourselves often incapable of open sharing.
Being open with outsiders at this sensitive stage is like admitting the general public to an infant’s nursery. The intentions are as yet too fragile. Champions don’t know whether their idea will get internal support, and executives are loath to tip their hand before they commit themselves. Yet this is the very moment when collaborative business innovation must be engaged. Limiting the firm only to internal perspectives on budding directions leads to missed opportunities on one hand and dead-end market plays on the other.
Knowledge of a company’s emerging intentions gives the bearer great power over that organization, power to help and also to do outright harm. Once exposed to Adobe’s basic idea and business model dilemma (see entry #1), Steve Jobs could have developed another graphics language, if he intended, and used it in Apple products instead of collaborating. Patent protection would likely not have stopped this. In many fields, there are so many ways to approach a technical solution that the important thing is not the invention but the general concept. Often the sensitive knowledge is not the technology itself but simply the validation of knowing someone is considering a market play with it. In some cases, firms in developing economies needed only get the vaguest sense of what a prospective partner had in mind to build the offering on their own and start selling it themselves. Advocates cry for uniform intellectual property rules and enforcement in countries like China and India and forget that often what is appropriated would not be considered IP theft in the first place.
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Shared Secrets – Entry #3: Less Invention, More Intention
This is the third in the series on managing collaborative innovation. Click here for the Beginning of the Series
The game changing business models of today are every bit as inventive as the latest technologies. But business models are not usually made from inventions that can be patented and protected so much as they are collections of intentions, which are typically not protected and can be exploited by anyone who discovers them.
Consequently, working with outsiders on new business models requires a level of sharing that is well outside the comfort zone of most companies. If the trend toward collaborative business model innovation accelerates, managers will need better tools to deal with it. In particular, innovators will need common standards for sharing their intentions.
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Shared Secrets – Entry #2: Collaborative Business Model Innovation
This is the second in the series on managing collaborative innovation. Click here for Entry #1.
A world-wide survey of seven hundred CEOs in the spring of 2006 showed most companies suddenly refocusing from growing their existing lines of business to fundamentally changing them. Two thirds of CEOs expected severe industry change to force a significant overhaul in their business model. Business model change initiatives rose to one third of innovation planning, and companies that focused on business model innovation significantly outperformed those that focused on product innovation or operational efficiency.
Eighty percent of business innovators said that the key to success was working collaboratively with external organizations.
The trends toward business model innovation on one hand and collaborative innovation on the other constitute an historic convergence – collaborative business model innovation – where stories like Adobe’s become the norm, and diverse companies collaborate to create new, hybrid businesses. Virgin Airlines and Volvo strike a deal to combine airplanes and limousines into a door-to-door transportation experience. The host of an online community joins with international bankers to conceive Entropia, an online experience that sidesteps the typical gaming subscription model to become a currency exchange, changing real world money into the community’s virtual credits and vice versa.
OneWorld Health merges a traditional pharmaceutical business and a not-for-profit model to address malaria and other diseases that do not generate the financial returns to attract traditional pharmaceutical companies.
In their bestselling book, Blue Ocean Strategy, Renee Mauborgne and W. Chan Kim describe the rise of Cirque Du Soleil. Cirque’s CEO, Guy Laliberte, formed an intention to reinvent the traditional circus. What he created was an entirely new hybrid business model with elements from the circus, street performance, traditional theater, and the corporate event industry. Is Cirque a high-brow theater event or a circus? It is both and more. It requires business competencies outside the field of any one of its sources.
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