Cloud Computing Study Misses Innovation Point

Most studies underestimate the impact that cloud computing can have on revenue generations, overplaying the principle contribution to cost savings. As in the case of a study (part 1 and part 2) by U.K. Department for Business, Innovation and Skills, which concluded cloud computing would not materially contribute to the productivity of small and medium size enterprises (U.K.-based enterprises). They also noted that the cloud computing-based productivity of SMEs is approximately 5% less than large enterprises. However, a detailed review of their methodology show a fatal flaw in their analysis.

Most analysts can’t see beyond the obvious potential cost savings associated with provisioning on demand services, whether being infrastructure, services, and/or software. It is clear that under the right set of economic, operational, and business conditions, cloud computing can lead to significant savings in both infrastructure and human capital. But the benefits don’t end there.

The real narrative that CEOs/CFOs/CIOs want to focus on is how the cloud computing phenomenon can lead to top line revenue growth. But, in and of itself, the cloud does not. That’s right, cloud computing is not a DIRECT contributor to top line growth, unless you are one of the cloud providers. So, as in most cases, analysts conclude, incorrectly, that there are NO revenue contribution benefits whatsoever in having a cloud-centric business philosophy.

Now let’s jump over to those analysts assessing the benefits of systematic innovation programs. As in most cases, studies have show that companies who have vibrant andrepeatable innovation program (SEI level 3 or 4), can show predictable top line revenue results (Apple, Google, etc.). But what is the relationship between cloud computing and innovation?

Cloud computing is more about agility (ability to systematically change), that cost control. The ability have access to global networked set of computing assets, ranging from enterprise to high performance computing, as well as petabytes of storage and analytical services, all on demand, it key to ANY modernday enterprise innovation program. Being able to envision,conceptualize, and implement customer/client facing disruptive ideas within hours and have then vetted in the market in days is THE competitive advantage.

At some point the analyst will eventual look deeper into the cross organization implementation of cloud computing and report on system wide cause and effects benefits of provisioning on demand. But until then, we will, as a business community, need to rely on commonsense to help us in those business decisions impacting the top, as well as the bottom line.

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Social Media Spending Increasing To Create Top line Revenue

Understanding how other companies respond uncertain economic conditions might not immediately help in dealing with day-to-day activities, but contextual benchmarking does help elevate the fear that one might be going it alone. A recent study conducted by Duke University and the American Marketing Association, documented the rise of hiring, budgets, and social media spend over next year, is one such benchmark. While the economy continues to move sluggishly ,it does appear that companies are seeing value in investing on most things social media. Here is a brief summary of the key research results:

>> Market penetration (sustaining innovation – introducing current products and services to current markets): 44%

>> Product and service development (sustaining innovation – creating and introducing new products and services to current markets): 26%

>> Market development (sustaining innovation – adapting current products and services to new markets): 18%

>> Diversification (disruptive innovation – new products/services to new markets): 13%

 

 

 

 

 

 

 

 

So, it looks like companies are still holding onto deriving revenue from their current base. While the “why this is true” has not been addressed in the study, anecdotal data tends to support the notion that companies have not yet found “systematic approach for capturing value in new markets.” It appears that most find this kind of disruptive activity very difficult, a point I address in other blog postings (e.g., Reinventing Innovation).

Social Media offers growth potential in effort to capture value (monetization):

>> Social media budgets will grow from 5.6% to 9.9% this year.

>> Over the next five years, social media budgets will increase to 17.7% of the total marketing spend.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B2B (business to business) outpaces B2C (business to consumer) spending and outcome expectations:

>> B2B companies plan the greatest increase in social media spending this year, jumping to 11% from 6.5% last year.

>> B2C services continues to grow from 2.9% to 6.9%.

>> Social media spending is expected to jump from 7.5% to 11.6% within the next year and upwards of 19% over the next five years.

>> B2B product and B2B services will scale to 15.3% and 18.9% respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Social media experience and skill necessary for success; as such, hiring on the rise:

>>50%f of companies expect to hire new media marketers 2010

>> 61.4% and 77.5% will fill new marketing roles 2011 and 2012, respectively.

>> Only 27% are expected to look at university graduates.

>> The most sought-after skill sets include: Internet marketing, innovation and growth, social CRM, and brand management.

 

 

 

 

 

 

 

 

 

 

 

 

 

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Intellectual Property and Innovation Management

Everyone knows that outsourcing is a “fact of life.” Companies of all sizes and kinds – be they software/hardware vendors or software-enabled companies such as e-commerce providers – outsource the vast majority of their R&D. In today’s global market that’s the only way to be competitive.

Outsourcing, however, if not managed correctly can negatively impact innovation because the engineers doing the work have no vested interest in maintaining a culture of innovation that a CTO may espouse. Moreover, outsourcing entails an inherent risk: the media is rife with stories of outsourcers stealing IP and selling it on the black market. Like never before, striking a balance between the need to drive innovation while protecting valuable IP at all costs, has never been greater. What can companies do to achieve both?

View the IP Symposium Presentation at SlideShare.

View more presentations from Dr. Jerry A. Smith.

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SOA Innovation and Metrics

David Norfolk, a Senior Analyst for Development with Bloor Research, recently published a discussion we had around SOA governance: SOA Innovation and Metrics.

David’s lead paragraph is:

“Our article on SOA Governance provoked a rather wide-ranging conversation with Dr Jerry Smith, CTO of Symphony Services (which is an outsourcing supplier of software engineering services to ISVs and the like). Not surprisingly, Smith is interested in innovation and metrics: if you’re a “professional” outsourcer with your software engineers in India, you need to be able to deliver innovation (presumably your customers can manage the status quo well enough) and, just as important, you need to be able to prove that you deliver value—and, without metrics, and baseline metrics from the status quo, how can you do this?”

The unique perspective about this article is the focus on “organizational psychology.” Understanding why some organizations reward behaviors that sustain the status quo in light of a desire to innovate, especially with SOA, is important because is a causal factor of failure. So, if you are a SOA practitioner starting new initiatives, you need to check out this article.

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Inside Innovation

Ok, so this is a bit of a plug, but please check out the “Inside Innovation” podcast series. This podcast series explores the inner workings of global innovation ecosystems. Today, more than ever, any company in any industry or business has a sharp focus on innovation in order to remain competitive. Innovation is no longer just a term that every organization is giving lip-service to; it is critical to their ability to deliver significant value through new product, services, or solutions, by leveraging a global ecosystem. This series explores global innovation processes, profiles technologies and emerging best practices, and talks with industry innovators who are pioneering successful ecosystems – all of which are leading to the creation of value.

Subscribe through iTune
See me at Symphony Services

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It’s All About Vitality

Geoffrey Moore is correct in his assertion that most companies that have achieved economic success have done so through some degree of focus and attention on innovation. But unsuccessful companies have focused on innovation as well, spending countless dollars trying to R&D their way to success, only to find this path has paid for failure. Could they have foreseen these results? Is there a better performance measure through which to judge the vitality of an organization’s innovativeness?

R&D investment is not a good indicator of innovation, but a company’s Vitality Index (VI) is. VI is the ratio of revenue generated from new breakthrough innovations (disruptive) over the last 12 months as compared with all other existing revenue (sustaining). This is a revenue view of innovation verses a spend view. Most software companies think 10-15% of revenue spent on R&D is healthy from an innovation standpoint, but an R&D x-ray will reveal only 1-5% is actually focused on breakthrough, or ‘big I’ innovation. Healthy organizations should strive for a VI of 10-20%, which compounded over time, will result in a 100% turnover in revenue from new products every 5 years.

The Vitality Index’s ability to directly measure how innovations contribute to organizational growth sets it apart from the traditional indirect and implied measurements of R&D spending. Counting spend tells only the cost but not the gain. The measure of innovation must include consideration of the demand side and the diffusion of new solutions into the ecosystem. This is the real determinant of the success of an investment.

Geoffrey Moore is right in that a successful company is an innovative company. By using the Vitality Index as a direct measure of innovation, companies can foresee the revenue implications of unfocused R&D years earlier than with traditional measures. To foresee is to be forewarned, a metaphor realized through VI.

Measures aside, R&D performance plays a key role here. The burning question is how to shift resources and effectiveness to increase the prominence of ‘big I’, new breakthroughs in your revenue mix? As opposed to today’s primary concentration on ‘little i’ innovation, adding only incremental revenue, and an over reliance on ‘camouflage i,’ which is at best a short-term fix for increasing revenue from current products but offers no new value to customers. This is the subject of the next conversation.

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Semantic Battles in Innovation and Disruption

Tom Foremski argues that meaning does not matter. Specifically, it is hard to “flight the broad trend to dilute the meaning of innovation.” I disagree.

Helping others understand complex concepts is fundamentally rooted in using language correctly; that is, words have meaning. So dealing with innovation should not be treated differently just because established organizations decide to simplify their effort by diluting meaning to the point where it simplicity is unusable.

Innovation is about creating inventions that have value, often measured through revenue, margin, and market share. However, the application of innovation does occur in different context. As Dr. Christian has noted, there is both a sustaining and disruptive component to innovation. Disruptive, as you have noted, deals with adding value in order to create new markets (e.g. creation of the electric engine for the automobile market). Sustaining, on the other hand, is about added value to an existing market (e.g. increasing the efficiency of a catalytic engine). The first type of innovation, disruptive, is about value for tomorrow; while the second type, sustaining, addresses value for today.

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