Merry Xmas and Happy New Year

Hoping the best for 2009. Wishing you the best for 2009.

R&D in Spain

On Nov 6, I participated in a discussion on TV about the situation in Spain with respect to investment in R&D in comparison with the rest of the world. The program has been broadcasted on InterEconomia TV (click here to see it). Some quick numbers. Only three Spanish companies in the top100. Telefonica, with an investment of 600M euros in 2007, is number 40, and invest 4 times as much as the second Spanish company (Indra). Telefonica is responsible for almost 45% of the total Spanish investment in R&D, and if one looks at the IBEX 35 companies, Telefonica is responsible for 85%. By far Telefonica is the largest Spanish company investing in R&D, and as such serves as a national R&D motor, helping many small companies and universities in accessing R&D funds .

Interested in why this is the case? Have a look at the program (20 min). Enjoy!

Hybrid Worlds

Since the financial crisis started, I have the feeling that "Hybrid Worlds" have become a reality. In "hybrid worlds" the virtual and physical worlds come together; the internet and the real world, virtual reality, etc. In this financial crisis, it seems that financial instituations (physical world) and their stock value (virtual world) have come very integrated. The connection is as follows: a bank possesses many assets, many of them are on the stock exchange. Those assets go down in the crisis, and so thus the value of the bank. In order to accomodate for this (virtual)loss, the bank needs to make provisions. If the losses are too big, the bank needs government help, or it goes bankrupt. Nothing more physical then a bank going bankrupt. But physically, the bank is exactly the same as before. It is the virtual world that has taken over ...

The Ambidextrous Organization

To achieve successful R&D and real innovation (bringing new things successfully to markets) is easy on paper but very hard in practice. Thousands of enterprises are struggling with this using a variety of methods, methodologies, instruments and organizations. Typical problems include how to ensure proper technology transfer, how (de)centralized should R&D and innovation be, how to initiate and foster new business, what is the right balance between short (improving existing business), medium and long term (create new business), etc, etc.

Recently I was recommended to read a 2004 article of the Harvard Business Review called “The Ambidextrous Organization”. It says, among others, that one of the main challenges companies face is to -at the same time- exploit existing business and explore new business. Companies need to be able to look backward and forward at the same time, while those two activities have very different requirements (e.g. in strategic intent, critical tasks, competencies, structure, compensation, culture, etc). Not surprisingly, companies struggle to deal with those conflicting requirements. In this article, the authors have investigated 35 attempts to launch breakthrough innovations in different industries. Their study shows that organizations use one of four possible ways to manage those innovations within their organizational structure. By far, the ambidextrous organization is the most (and only) successful one. An ambidextrous organization isolates the operation of the new business from the existing business by giving it freedom to organize and structure itself as appropriate, while it uses top-level executive involvement to keep the new business connected to the organization. Top-level involvement ensures visibility of the new business to the decision organs and evidences importance of the initiative to the organizations. 

This makes a lot of sense and seems relatively straightforward to apply. But how easy is it to put in practice in real organizations ….?

 Enjoy!

Google's Innovation Machine

The April edition of The Harvard Business Review features an article about how Google performs and manages its innovation: Reverse Engineering Google’s Innovation Machine. The article explains Google’s innovation ecosystem, which includes Content Providers, Consumers, Advertisers and Innovators. The ecosystem helps Google to know and involve its customers, to serve as a platform for third parties for delivering their services, and to provide value for advertisers. All information passes through Google’s infrastructure providing it with a wealth of relevant information on user preferences, actual use of services, etc.

It describes Google’s 1200 quarter forecast (300y), which provides the company with a long term vision and mission: “to organize the world’s information and make it universally accessible and useful”. Part of this vision is currently being monetized through advertisement.

It also details to some extent the famous 20% that Google employees have to spend on innovation (other things than their daily business).

An interesting case study, especially for telcos, which are currently reflecting on whether they should continue to be only a “dump pipe”, or, in addition, a “smart pipe”, or even a “service provider”.

Enjoy!

Business in Bottom of Pyramid Countries?

Recently I read a paper of Prahalad and Hammond that was already published in the Harvard Business Review as early as 2002. Now in 2008, it still seems very interesting, actual and worthwhile pursuing. The title of the article “Serving the World’s Poor, Profitably.” The paper tells that large multinational companies can do good for the poorest people in the world. A free version of the paper can be downloaded from the World Resources Institute (http://pdf.wri.org/whatworks_serving_profitably.pdf). In this post I will briefly write the things that most attracted my attention.

Being poor is expensive. In the Indian city of Mumbai, prices of the same articles are consistently higher in poor areas than in upper-class areas. Articles include credits, water, phone calls, diarrhea medication and rice and prices range from 1.2x to 53x more expensive. The main reason is the lack of efficient distribution channels.

The world pyramid. 100M people have an average annual salary of more than 20.000$. 2 billion people earn between 2.000-20.000$, and 4 billion people earn less than 2.000$. Usually, multinational corporations serve the 100M rich people, assuming that the bottom of the period (BOP) cannot afford their services. The paper shows that this is not necessarily true (on the contrary) and that many poor people do want to spend some money on services and/or products. E.g., in the same town of Mumbai, 85% of the household own a TV set, while not having a proper house. The telco Grameen provides many BOP people with mobile access by having villagers in rural areas share one mobile line. Whereas each person maybe spends very little money on communication, a large village may spend as much as 1000$ per month.
The paper argues that one should not underestimate the improvements that for example communications infrastructure can provide to the poorest people. Globalization is often (rightly) associated with outsourcing part of the value chain to cheap (and thus poor) countries. But Prahalad and Hammond show that it can also be different.

The business interest is manifold. First, there is a huge opportunity for growth in terms of customers. Second, usually conditions of operating in BOP countries are very harsh, forcing companies to provide innovative solutions. Once those solutions work in the difficult environments, moving those solutions to more friendly markets may result more efficiency and in significant savings. Many large companies, therefore, setup an R&D centre in BOP countries focused on local opportunities. There exists a telecommunications operator that is only operating in poor countries that has an EBITDA as high as 65%

My conclusion is that while many of us rule out the possibility to do business in BOP countries because 1) we think there is no business, 2) conditions are very difficult (humanitarian, political, nature), 3) we want (or need) to be a social responsible corporation, and 4) the kind of managerial skills needed are totally different, it actually makes a lot of sense to consider BOP markets seriously.

The authors’ answer to the question “is it worth the effort?” “Big corporations should solve big problems.”

Patents in Spain

The other day I had a meeting with the Spanish Office for Patents and Trademarks. They gave me some high-level indicators of the situation of patents in Spain. The figures are taken from the notes I took during the conversation, so they may not be accurate. Nevertheless, they are interesting and show the (poor) state of play in Spain.

• 3000 Patents per year in Spain
  —CSIC: 130 patents/y
  —All univs: 300 patents/y
  —Grupo Antolin: 20/y
  —Most patents are in pharma sector
  —350 patents/year in ICT area
• EPO denies 20% of patents
  —What is accepted usually is modified since original filing
• ICT patents typically last around 7 to 8 years
• 5% of patents reach market
• Two types of patents
  —High quality (with exam)
  —Low quality (no exam)
• Filing patent in Spain costs 480€, legal support up to 3000€
• 12-18 months between filing patent in Spain and decision of world-wide coverage (involves costs)

Judge for yourself, but I think we have some work to do here ...