Creating, Nurturing, and Sustaining Innovation Clusters

McKinsey has partnered with the World Economic Forum to create an “Innovation Heat Map" to identify innovation clusters based on the analysis of the variables that drive innovation. The clusters are plotted on a classic McKinsey 2x2 that measures the size of a cluster on momentum versus diversity. I would encourage you to read the detailed analysis and look at the innovation heat map. The clusters are classified as:

Dynamic oceans: Large and vibrant innovation ecosystems with continuous creation and destruction of new businesses. Leading innovators and primary sectors change organically as the hub frequently reinvents itself through significant breakthrough innovations.

Silent lakes: Slow-growing innovation ecosystems backed by a narrow range of very large established companies that operate in a handful of sectors. These clusters are frequently the source of a steady stream of “evolutionary” innovations and step-wise improvements.

Shrinking pools: Innovation hubs that are unable to broaden their areas of activity or increase their lists of innovators and so find themselves slowly migrating down the value chain, as their narrow sector becomes less innovation driven and increasingly commoditized.

Hot springs: A small and fast-growing hub that relies on a small number of companies to establish itself as a relevant world player in a narrow sector.

While I applaud the efforts behind analyzing the vast amount of indicators to find patterns that explain certain macroeconomic innovation trends I disagree with the idea of measuring innovation based on number of patents. The effectiveness of our (US) patent system to measure innovation effectively across industries is questionable. How many of these patents are actually converted into real innovations? This problem is exasperated when we involve the patent systems of the countries across the globe.

This analysis assumes minimum infrastructure base as a qualifier to level the playing field. Though I do appreciate the intent of this assumption, this approach leaves out the countries who innovate despite of poor infrastructure such as India and China. An alternate approach could have been a weighted cluster that focuses on the efficiency of the clusters to demonstrate the untapped innovation potential due to lack of infrastructure.

These clusters provide an opportunity to explore some correlations. Hot Springs regions' growth is correlated to untapped natural resources and recent influx of skilled immigrants. This might explain Canada and Australia being Hot Spring regions due to their untapped natural resources and the immigration policies designed to attract highly skilled an well educated prospective immigrants.

To make this analysis even more compelling I would like to go back few years more than the current nine years of data and choose time-based visualization such as Gap Minder. This might reveal some interesting patterns about how the clusters grow from small to big and vice versa and change quadrants as the years go by. This visualization would not only allow to add filters but would also allow to track relative progress of a subset of clusters. We might also be to see how the clusters move from silent lake to dead pool since they cannot innovate themselves out of the current crisis e.g. auto and manufacturing regions in the US.

IBM's Blue Cloud Meets Juniper To Alleviate Cloud Computing Adoption Fears

Security and lack of an acceptable SLA are customers' top adoption fears to move to cloud computing. IBM's recent announcements to further advance their cloud computing initiative known as Blue Cloud should help alleviate these fears to some extent. IBM announced their partnership with Juniper for their hybrid cloud initiative to provide secured private cloud with better SLA. IBM also announced new offerings for the cloud - Tivoli storage as service and a new set of cloud management tools to align with what a typical CIO would look for when migrating to the cloud. In addition IBM is pushing some of their existing offerings on the cloud that customers can now use off Amazon's EC2 on pay-as-you-go subscription model.

IBM has been experimenting with the concept of a private cloud for a while. One of such experiments included creating a private virtual cloud inside the firewall to deploy some of the regions of SecondLife with seamless navigation in and out of the firewall. The partnership with Juniper to leverage its EX series MPLS switch would allow IBM to have better QoS from Layer 2 to Layer 4. In simpler words, MPLS switch would allow the network operators to have much better control over what kind of data can be routed across what paths across private and public clouds based on dynamic network conditions such as congestion, failure etc. ensuring predictable SLA. This should alleviate some of the security concerns of the customers who want to stay on a private cloud and want a better SLA. IBM is in great position to offer tiered SLA due to the hybrid nature of their cloud deployment.

So, what about Juniper?

Juniper has been competing with Cisco since its inception and has lately struggled to differentiate. Last year Juniper made a splash by announcing a data center infrastructure solution with the EX series switches and the SRX dynamic appliance. Juniper's partnership with IBM is an introduction of a networking player into the cloud computing game that will give Cisco and others run for their money. Cisco's Nexus switch and the data center offering, HP's networking switch Pro Curve, and now Juniper's partnership with IBM are signs of vendors looking for adjacent market potential essentially blurring the boundaries
between data center infrastructure, networking hardware, and traditional storage. The vendors are eager to ensure their presence in the evolving "cloudware" category by leveraging existing investment and customer-base with partnership opportunities.

Demystifying Sales Pipeline Crystal Ball - Risk Management With VaR And Black Swans

“If you put a gun to my head and asked me what my firm’s risk was, I would use VaR.” - said Richard Bookstaber, a hedge-fund risk manager. New York times has a long article on the role of VaR in risk management (bugmenot for nytimes) that includes the arguments on both the sides. Simply put Value At Risk, known as VaR, is a mathematical framework based on many underlying models that quantifies the risk into single dollar figure with 99% probability. Firm managers really like this number since they can measure individual trader's risk and the total risk of the firm. People such as Nassim Nicholas Taleb who are against VaR passionately argue that not being able to measure the impact of the last 1% could result into catastrophic losses under Black Swan events. He argues that people cannot predict and measure the risk using a model for the events that they have not seen in their lifetimes but the events that do occur in their lifetimes. Nassim is a person who hates ties, loves reading though does not read newspapers, and does not watch movies. He strongly believes that the current economic downturn is an example of financial firms manipulating VaR that resulted into asymmetric risk proportions leading to such catastrophic losses.

I am not an expert in financial risk management and won't argue whether VaR is a good or bad indicator of the health of firm's portfolio. I would rather describe a phenomenon as it relates to direct sales process that lacks VaR like indicators leading to poor risk management. Sounds strange, isn't it? But it is not.

Let's take an example of traditional direct sales process of enterprise software company. Due to the unpredictable current market conditions many enterprise software companies have stopped providing revenue guidance. Even during bullish economy the health indicators of sales pipeline, similar to the health of investment portfolio, are more of an art than science. The sales reps have "confidence" in certain opportunities that they are pursuing and there is no model in place to roll up all the subjective indicators and come up with single confidence number that allows the executives to communicate the revenue risk based on the current pipeline. The enterprise software systems are good at keeping track of what sales people are actually doing but they are not designed to model the risk of opportunities based on macroeconomic changes such as customers' aspirations to go green, changes in government subsidies etc. These systems are not even designed to model customer-specific risks that could derail the sales process such as viability of customer's business model, probability of change in customer's annual IT budget, CIO likely to get fired, a possible merger or an acquisition etc. As a whole these systems do not provide any support to roll up the risk to the executives to empower them to intervene, mitigate, and communicate.

It is critical for an organization to stay on top of their sales pipeline to meet and exceed the street's expectations, but it is even more critical to detect the risk early on and course-correct to mitigate and manage the risk. That's what all the stakeholders - executive management, employees, customers, and investors - would like to see in a sales process of a modern organization. There is a lot that the sales pipeline can learn from the financial portfolio risk indicators such as VaR. And yes, there are Black Swans in the IT world too - a dot com burst would certainly qualify being one of those. Sales pipeline needs a robust set of models that are built on subjective sentiments and objective data to represent the risk of loosing a opportunity leading to lost revenue.

Open Source Software Business Models On The Cloud

There are strong synergies between Open Source Software (OSS) and cloud computing. The cloud makes it a great platform on which OSS business models ranging from powering the cloud to offer OSS as SaaS can flourish. There are many issues around licenses and IP indemnification and discussion around commercial open source software strategy to support progressive OSS business models. I do see the cloud computing as a catalyst in innovating OSS business models.

Powering the cloud: OSS can power the cloud infrastructure similarly as it has been powering the on-premise infrastructure to let cloud vendors minimize the TCO. Not so discussed benefit of the OSS for cloud is the use of core algorithms such as MapReduce and Google Protocol Buffer that are core to the parallel computing and lightweight data exchange. There are hundreds of other open (source) standards and algorithms that are a perfect fit for powering the cloud.

OSS lifecycle management: There is a disconnect between the source code repositories, design time tools, and application runtime. The cloud vendors have potential not only to provide an open source repository such as Sourceforge but also allow developers to build the code and deploy it on the cloud using the horsepower of the cloud computing. Such centralized access to a distributed computing makes it feasible to support the end-to-end OSS application lifecycle on single platform.

OSS dissemination: Delivering pre-packaged and tested OSS bundles with the support and upgrades has been proven to be a successful business model for the vendors such as Redhat and Spikesource. Cloud as an OSS dissemination platform could allow the vendors to scale up their infrastructure and operations to disseminate the OSS to their customers. These vendors also have a strategic advantage in case their customers want to move their infrastructure to the cloud. This architectural approach will scale to support all kinds of customer deployments - cloud, on-premise, or side-by-side.

The distributed computing capabilities of the cloud can also be used to perform static scans to identify the changes in the versions, track dependencies, minimize the time to run the regression tests etc. This could allow the companies such as Blackduck to significantly shorten their code scans for a variety of their offerings.

Compose and run on the cloud: Vendors such as Coghead and Bungee Connect provide composition, development, and deployment of the tools and applications on the cloud. These are not OSS solutions but the OSS can build a similar business model as the commercial software to deliver the application lifecycle on the cloud.

OSS as SaaS: This is the holy grail of all the OSS business models that I mentioned above. Don't just build, compose, or disseminate but deliver a true SaaS experience to all your users. In this kind of experience the "service" is free and open source. The monetization is not about consuming the services but use the OSS
services as a base platform and provide value proposition on top of
that. Using the cloud as an OSS business platform would allow companies to experiment with their offerings in a true try-before-you-buy sense.

Situational Marketing and Participatory Information Platform To Lure Info Shoppers

Mark Penn, the author of Microtrends, has written an article in WSJ describing information shoppers. These shoppers are the consumers who go online to find all the related information ahead of time before making a purchase. The traditional sales people and the TV commercials don't interest them and do not fulfill their information appetite. I enjoyed reading Microtrends and this article does a great job highlighting a psycho-demographics that marketers will have trouble going after using traditional approaches. The marketers should pay close attention to this trend. The emotional appeal of a brand could help attract consumers to the products but may not necessarily translate into sale unless info shoppers are satisfied with the necessary information for a given situation to make that decision.

Situational Marketing: The marketing campaigns, active or passive, miss the real situational context. The consumers are making a decision under specific circumstances that I would describe as a micro-situation. The information that is presented to them, most of the time, lack the context and stop just at the brand appeal. If the marketers can identify these micro-situations such as looking for a new iPod since my Zune froze or a dual layer DVD that would support my current burner they could win over those consumers.

Google pioneered the search over browse via AdSense. The contextual ad placement based on users' intent while searching have performed better over non-contextual banner ads that people typically see (or not) when they browse. Extending this concept beyond the ad to make information available to the shoppers when they need them, until they complete the sale, would go a long way against bombing them with non-contextual marketing campaigns. Marketers have used obscurity to promote the coolness of the brand but what really helps consumers to seal a deal is the brand transparency.

Think beyond traditional information channels: The average number of visits to a vendor's site has been consistently falling since people are exploring other ways to find information and engage into conversations. Providing information on a participatory platform allows the consumers to build community around the products and brands to exchange information. The marketers can tap into the collective wisdom to promote the products. The open source software is a living example that demonstrates the influence of community and community-generated content in buying behaviors.

Nokia Is The New Blackberry Of The Emerging Countries

Nokia announced mobile email service, Mail on Ovi, currently targeting the emerging markets.
Nokia has had great success in selling reliable and inexpensive handsets in the emerging markets. In the countries such as India the consumers never used the voice mail on their landlines and went through the mobile revolution to use SMS as a primary asynchronous communication medium. Many of these users are not active email users, not at least on their mobile devices. If Nokia manages to provide ubiquitous user experience using Ovi to bridge email and SMS on not-so-advanced-data-networks it can cause disruption by satisfying asynchronous communication needs of hundreds of thousands of users.

The smartphones would certainly benefit out of this offering and give Blackberry a good run for their money. Nokia completed the Symbian acquisition that makes them a company whose OS powers 50% of all the smartphones in the world. Symbian is still a powerful operating system powering more than 200 million phones and it is open source and it is supported by Nokia. The emerging countries haven't yet gone through the data revolution and Nokia is in great position to innovate.

De-coupled Cloud Runtime And Demand-based Pricing Suggest Second Wave Of Cloud Computing

A couple of days back Zoho announced that the applications created using Zoho Creator can now be deployed on the Google cloud. On the same day Google announced their tentative pricing scheme to buy resources on their cloud beyond the free daily quota. We seem to have entered into the second wave of the cloud computing.

Many on-demand application vendors, who rely on non-cloud based infrastructure, have struggled to be profitable since the infrastructure cost is way too high. These vendors still have value-based pricing for their SaaS portfolio and cannot pass on the high infrastructure cost to their customers. The first wave of the cloud computing provided a nice utility model to the
customers who wanted to SaaS up their applications without investing into the infrastructure and charge their customers a fixed subscription. As I observe the second wave of the cloud computing a couple of patterns have emerged.

Moving to the cloud, one piece at time: The vendors have started moving the runtime to a third party cloud while keeping the design time on their own cloud. Zoho Creator is a good example where you could use it to create applications using Zoho's infrastructure and then optionally use Google's cloud to run it and scale. Some vendors such as Coghead are already ahead in this game by keeping the both, design-time and run-time, on Amazon's cloud. Many design tools that have traditionally been on-premise might stay that way and could help the end users to run part of their code on the cloud or deploy the entire application on the cloud. Mathematica announced their integration with Amazon's cloud where you can design a problem on-premise and send it to the cloud to compute. Nick Carr calls it the cloud as a feature

Innovate with the demand-based pricing: As the cloud vendors become more and more creative about how their infrastructure is being utilized and introduce demand-based pricing, the customers can innovate around their consumption. Demand-based pricing for the cloud could allow the customers to schedule the non-real time tasks of the applications based on when the computing is cheap. This approach will also make the data centers green since the energy demand is now directly based on computing demand that is being managed by creative pricing. This is not new for the green advocates. The green advocates have long been pushing for a policy change to promote variable-pricing model for the utilities that would base price of electricity on the demand against a flat rate. The consumers can benefit by their appliances and smart meters negotiating with the smart grid to get the best pricing. The utilities can benefit by better predicting the demand and make the generation more efficient and green. I see synergies between the cloud and green IT.