Delivering Breakthrough Innovation - Where to Start? Ans: New Technologies

In the previous blog post, we discussed the vision of ideal world as the starting point. In this blogpost, we will discuss how an emerging technology can be a starting point.

For the start, one needs to keep an eye out for emerging technologies. There are several ways to do it like having subscriptions of relevant magazines, visiting demo days of corporate accelerators etc.

The next step would be to explore the application of an emerging technology relevant to your business. This would require knowledge of the company's products/services.

Once an application areas is defined, the next step is to investigate technical feasibility and create a mock-up/demo to communicate the idea. Its important to note that to adopt an emerging technology for a given application, it may need to be combined with some other technologies as well. It would be wrong to assume that a technology in isolation can be the whole solution.

The next step is to present the idea with a mock-up/demo to the customers/stakeholders and get their feedback. One can argue that customers should be involved earlier when discussing the area of application. But then there is a risk that the idea would be shot down prematurely. Customers or experts are good at pointing out that why something won't work. The response one can get will be 'things are already being managed well and hence the change is not required', 'something of this sort is already happening', 'users may not accept the change', 'I can't see the real benefit' etc.

Its only when there is a demo in front, the minds of customers or experts get triggered to think how the idea might be useful. Also, the ideas start flowing from them on how to improve it further.

With a stakeholder/customer buy-in , its time to move on to implementation.

Since, we are talking about approaching breakthrough innovation via emerging technologies, often the expertise in an emerging technology will be found absent in the organisation. One would need to tap into external expertise which might be present with an academic institution or a company or an expert. Hence, external partnerships become critical in this approach. An open innovation network not only helps companies to keep abreast with emerging technologies but also find experts to adapt and develop them. 

Delivering Breakthrough Innovation - Where to Start? Ans: Vision of Ideal World

In this and subsequent blogpost, several starting points of an Innovation will be discussed. These starting points are not related to interesting stories that you might have heard which include a napkin, a coffee table or a beer. Instead they are more tangible which would tell a professional where and how to start innovating. In any large organisation, the success of Innovation program is measured by innovations delivered and impact on triple bottom line. All the hot air and talk surrounding innovation is inconsequential if it doesn’t translate into concrete deliverables.

For the professionals tasked with delivering breakthrough innovation, following is a good starting point:

The Vision of ideal world

With some knowledge of the overall business ecosystem in which the company operates in, it’s possible to paint a picture of an ideal world. Some examples could be ‘Door-to-Door mobility’ for a automotive company, ‘Non-intrusive security’ for a security systems company, 'Green Buildings' etc.

A vision too broad will not help. It should deal with a manageable part of business like inbound supply chain, a specific area of customer concern, a green product/service etc.

Next step is to validate the vision with experts. I would emphasize the word ‘experts’. The objective assessment of experts helps to identify weakness in the vision and forces one to improve it and plug the gaps.

Also, the experts feedback mark the beginning of the journey from ‘Vision to Idea’. As one explores the vision further with experts, one would come to know that:

•        Some parts of the vision have already been implemented.
•        Some parts of the vision are already being looked into.
•        Some parts of the vision are too far from the business perimeter of a company.

The above parts, though attractive, may have to be dropped. As a result, the unique actionable part of the vision which is relevant to a company would constitute the innovative idea. This innovative idea, apart from drawing on a bigger vision, would also constitute a business case and indicators of potential impact on business. This should get the first buy-in to move forward.

One would be tempted to assume that the next step would be to detail a business and operating plan. However, for a breakthrough innovation, there is uncertainty and hardly any precedence to compare with. Market research and pricing becomes difficult in such cases. An alternate approach is needed for dealing with breakthrough innovative ideas with high uncertainty levels. This alternate approach is prototyping. Quick and low-cost prototypes which are able to demonstrate and communicate the benefits are much more powerful than huge Word and Excel documents.

Building a prototypes generates valuable insights: 

• Costing: While building a prototype, one gets to know how much a full blown solution may cost.  
• Technological risks: Any technology risks are made visible early in product development.
• Customer feedback: Customer feedback is more objective and elaborate on a prototype rather than a paper concept.
• Market potential: With demonstration of prototypes to customers and experts, one could gauge the benefits accrued and hence size the market.
• Risk sharing launch customer: A forward-looking customer may agree to try out the proposed product/service and share the risk in its development.

The ‘How’ (how the idea will be implemented) and ‘Why’ (a detailed business case backed with research) becomes evident with a prototype. With a green signal from the management, the next stage is to implement and deliver.

To conclude, a good starting point of breakthrough innovation is to paint a vision. Also, for breakthrough ideas, prototyping is key to resolve various uncertainties. 

On the soft side, perseverance is key. Some expert feedback can be discouraging, but key is to persevere and find the Gold.  

Market Sentiments at odds with Statistics. Case of Economic service life of aircrafts.

Recently I came across an interesting conflict. A serious debate has been going on whether Economic Service life of Civil Aircrafts are under pressure.

Proponents of debates cite recent developments and experts view to say that Economic service life of aircraft is reducing. And opponents are citing statistics to refute the claims. That makes the debate all more interesting.

Let's quickly look at what proponents are saying:

• Aircraft values have fallen significantly for many older aircraft over the last two to three years.  John McCormack , Ernst and Young, 2012
• The widening gap between the physical life of the aircraft and the assumptions made in respect of life and value in financiers' calculations is a growing concern. Airline Business 2012
• Another trend is for younger aircraft to be parted out and sold for spares as this provides greater value than as an aircraft in operation. PWC 2013
• … despite the large availability of used aircraft in the secondary market, many airlines have begun to lease new aircraft from lessors ……made older aircraft harder to sell/lease, increasing their availability and reducing their values... Aircraft Monitor 2012
• ….. aircraft lessors basing their lease rates for new jets on the assumption they will have an economic life of 25 years, when 15 years might be more realistic… Aviation Week MRO Forum, Dallas 2012

There are several explanations offered to support the aforesaid trend. Customers are now preferring new aircrafts to attract customers. Also, on the supply side, it is alleged that there are too much new aircrafts production from OEMs. ECA (Export Credit Agency) support new aircraft manufacturing in home countries. In addition, they give credit support for the sale of new aircrafts to developing countries which were earlier a second hand market. Coupled with technology advancements in new aircrafts which lower cash operating costs for airlines, the overall effect is downward pressure on the residual values of the older aircraft and the second hand market. Also, the changes in regulation related to safety, noise and emissions are driving up the demand of new aircrafts.

However, the opponents point out that statistics tell a different story. 

• A leading aircraft manufacturer points out that statistics on both measures "the average age of airplanes when they are permanently withdrawn from service" and "the time interval for a cohort of airplanes to be reduced by half" have remained stable for more than 15 years. 
• A leading aircraft leasing company proves by numbers that broadly the current industry value retention assumptions holds good and only an insignificant shift of 0.6 years is observed for narrow body jets. http://www.avolon.aero/pressrelease/Aircraft_Retirement_Trends_Outlook_Sep_2012.pdf
• Also, there is evidence of business model which leverages older aircraft with strong maintenance records and low utilisation rates to lower operating costs and avoiding major up front acquisition costs. http://www.aviationfinance.aero/articles/12419/Diverse-airline-business-models-helping-to-support-demand-for-older-aircraft 

Both positions are well supported, but then how does one clarify the dichotomy. There is no straight answer, but following observations may help shed some light:

- The world economy has been going through a slump for past 5 years which has put pressure on aviation industry as a whole and consequently on second hand market.
- The statistics from a leading aircraft leasing company do show higher retirement near 15 year life but not significant to shift the average over 45 years.
- Early aircraft retirements are a more recent phenomena. Many LCC carriers have adopted this approach to acquire fuel efficient and brand new aircrafts to attract customers. 

It might be too early to say whether there is a long-term fundamental shift in aircraft economics or a short-term trend. However, the issue can have far reaching consequences on the industry and hence warrants attention and close tab on developments.

Move up the Business Value Chain? Or Create the most Value in the Chain?

Several companies who compete on cost are tired of it. Hence, they strive to move up the business value chain with an aim to differentiate themselves from competition and improve their margins. This is evident across industry sectors. Several IT companies who compete on cost for back-end subcontracted work are trying to build capabilities up the value chain like Enterprise and Management consulting. Manufacturing companies as well are looking for ways to build high-value products rather than being suppliers for it. The encouragement for moving up the business value chain also comes from Govt. industry and trade bodies.

Is moving up the value chain the only way out from fighting on cost? Or is there an alternate way where you can add much value in the chain without changing your position? Consider aviation industry for example. Fuel savings have become a much important lever for airlines to make profits and stay in business. And who contributes the maximum to fuel savings today? Its not the aircraft manufacturers, but the engine suppliers. Most of the increase in fuel efficiency in recent times is attributed to technology advances in engines. Hence, engine suppliers are contributing much value in aviation value chain without changing their position in it. Needless to say, it does increase their bargaining power.

Even in other industries its not very difficult to see whereby players in middle of the chain can add value. For instance, in Automotive, as the whole industry move towards electric cars, the battery suppliers will have the opportunity to play the most value adding role by providing batteries with high energy density and other important characteristics.

Opportunities can also be created rather than waiting for market conditions to create them. For instance, engineering suppliers can seek to be more than a subcontractor for low-end engineering work. They can provide niche skills and rapid prototyping capabilities which can be leveraged by their customers to try out new ideas and innovate. By doing so, they can also benefit by being part of growing Open Innovation trend.

Hence, the opportunities to escape the price-war and provide differentiated offerings may not be that far up in the value chain.

Opportunities at the Intersections: Aviation and Agriculture

There are several alternate perspectives which one could leverage to seek out new business opportunities in an industry. One such alternative perspective that was experimented with was to explore the intersections between the focus industry and a distinctly different industry. The focus industry was aviation and the distinct industry was agriculture. While exploring the intersections between the two industries, several opportunity areas worth exploring became apparent. I would discuss some of the briefly:

Weather Predictions

Weather is as important to agriculture as it is to aviation. Both industries require improved weather predictions. Data and numerical weather modelling drives the weather predictions today. Satellite data has some limitations. For instance, they cannot provide for upper air data and more localized data. The weather data collected on-board the aircraft is now being leveraged to provide the upper air data to Meteorological agencies (Refer AMDAR program, http://www.wmo.int/pages/prog/www/GOS/ABO/AMDAR/ ) . This improves weather modelling which helps agriculture as well.

Also, the sensors on passing aircrafts can provide localised weather data on the regions below which can improve weather advisories for agriculture.

Precision Agriculture

Its the latest agricultural method to maximize crop yield. The method relies on remote sensing data to monitor crops conditions. Unmanned aircrafts are being deployed in some regions for the purpose and the crop imagery is being used to determine conditions like crop-stress, ready for harvesting, water scarcity etc. (Eg: http://www.cropcam.com/ ) . Further opportunities may lie in using imagery from commercial flying aircrafts on a large scale.

High value produce

To improve the income and livelihood for farmers, they are encouraged to grow high value crops. One of the such crops are bio-fuel cultivars from which bio-jet fuel can be derived. We consider only sustainable bio-fuel crops which can grow in dry and waste land and hence do not compete with food crops. Eg: Jatropha, Castor, Eucalyptus. As per IATA, aviation bio-fuel is a US$100bil plus business opportunity.

The emphasis in this blog post is not on the above three areas as such but on the perspective to explore linkages between industries to identify opportunity areas. 

Urbanisation Megatrend & its Impacts

The global proportion of urban population rose dramatically from 29% in 1950, to 49% in 2005. It is projected to rise to 60% (4.9 billion) by 2030.

Its in the middle of 2009, when the number of people living in urban areas (3.42 billion) had surpassed the number living in rural areas (3.41 billion).


However, there is a glaring disparity in urbanisation levels throughout the world as shown below.



% of Population in Urban Areas



Broadly, developed countires have more urbanisation levels than the developing and least developed countries. Urbanisation tends to increase with economic development and urban areas become major economic centres. For instance, the Mumbai megacity contributes 5% of India's GDP and its GDP is expected to grow five folds in next 20 years.

Urbanisation megatrend imposes challenges in both urban and rural settings.

Urban

As urban centres expands, the stress on civic infrastructure would increase, be it water, sewage, electricity or roads. Infrastructure of several sities are already stretched. City authories are banking on a combination of sensor network and information technologies to deliver 'Smart City' to cope with the demands.

Mobility, a key to vibrant and functioning city, is also being relooked with emphasis on multi-modal integration and sustainable transport strategies.

In addition to reactive approaches, proactive approach in terms of urban planning is also gaining importance. Urban planners and city agencies are getting together to plan controlled and sustainable expansion of cities. In recent times, city suburbs are far better planned than before. For instance, urban planners go for polycentric development with a theme for each centre. And for each centre, urban planners may go for mixed use (co-locating resdential and employment centres). Urban planning for each city is customised and there is no universal formula yet.

As urban areas become economic centres, more and more efforts will be invested in preserving their capacity of economic growth.

Rural

Rural may sound the poor cousin of urban in all the talk about urbanisation. However, ignoring rural would be a costly mistake. Rural economies will continue to serve our basic neccessities of food and clothing. Urban migration is aready posing a serious challenge to rural economies. One cannot stop migration, but one must ensure that rural areas continue to grow in spite of migration. Capacity building, technology driven practices and right produce are some of the intervention areas. For instance, the focus in developing countries like India would be more on mechanisation and improved agricultural practices to improve productivity. In addition, to improve revenue capability, the focus would be more on cash crops (including bio-fuel crops) and output quality (which could be bought by food processors at high prices).

Fate of both urban and rural economies are interconnected by demand and supply. If one goes down, it will drag down the another. Urbanisation is affecting both. Care must be taken that we do not pre-occupy ourselves with Urban issues that we lose sight of rural challenges.

Customer Behaviour & Social Media

In a recent market study, I came across an interesting phenomenon related to customer behaviour and social media. It was observed that customers were more vocal on social media. Extreme statements were made by customers on twitter, facebook etc. However, during interviews, the responses were more controlled and mild.

One possbile explanation of this behaviour is that customers are always connected to social media. Hence, they post (or vent out) their feelings soon after their experience. Over time, the strong feelings associated with an experience subside and later customer interviews seldom elicit strong reactions.

Its important to take note of  this behaviour. The feedback on social media is rich in customer feelings and hence an important source of consumer feedback to a company's products and services.