Innovation From Aha to Development to Delivery:

Social Impacts, Business Performance & Strategic Outlook

Processes, Patterns and Performances

By Dave Livingston, Managing Principal, Llinlithgow Associates (www.llinlithgow.com )

Dave is a management consultant primarily focused on improving enterprise performance by

coupling strategy with execution thru the design and implementation of workable, integrated
management systems. He blogs on this and related issues in Economics, Markets & Investments
and specific industries and companies at www.llinlithwo.com/bizzx, his BizzXceleration blog.

Introduction
There’s always been a lot of discussion, arm-waving and lip service about innovation, it’s role in social prosperity
and business performance. Yet we’ve been in a fallow period where major Innovation that puts the Economy on
major new paths increases jobs and creates entire new industries has bad declining and fallow for years now. In
fact not since the great wave of major new industries were created after the Second World War have we seen the
creation of major, deep and structural innovation. There are multiple causes which range from mis-understanding
what Innovation, to how it works and functions inside a large organization to its role in society and the challenges
and histories.

Innovation is almost always confused with Invention – the Aha of a bright idea. That’s a part of it but a small part.
Innovation in fact is the creation of new value, whether on a major or minor scale. The act of innovation doesn’t
occur until the bright idea is turned into a product or service, until those are delivered to the market, until they
cause actual change and until they deliver value to the business and society. It’s by those standards we say that it
has been fallow for decades. Yet it has never been more important for two major reasons. First, it is the source of
new jobs and wealth and general prosperity. Second, we’re facing a period where the world is in the process of
catching up with us, rapidly, and we will have to deal with major disruptions in the structure of the world economy.

Disruptions we are not prepared to face unless and until or business and socio-governmental organizations and
institutions re-discover what innovation, how to go about it and begin to seriously commit resources and
investments. For one thing, innovation is not minor cultural change within the matrix of an existing organization,
though it’s often discussed as that. As in the innovative culture or organization.

Real innovation operates differently than business as usual and requirements distinct management, control
systems and executive commitment, usually to the point of being a stand-alone organization run in an entirely
different chain of command.

Here we discuss the nature and examples of innovation in business, the history of innovation and previous waves
and the current strategic situation. We also discuss the extend to which existing organizations are prepare to
seriously commit, or even capable of doing so.

On the whole we the news is not particularly encouraging though some few major leading companies, from Wal-
Mart to P&G to Hewlett-Packard to Intel have clearly re-thought themselves, the role and importance of innovation
and how they will manage it organizationally and strategically. For the long-run health of the economy, and
society, it is necessary that the general understanding of what it is, how to go about it, now to manage it and why
it’s so strategically critically be radically increase. And, more than that, why it’s so necessary for us to collectively
commit to Innovation, as a major pillar of the future.
 From Aha to KaChing: Innovation and Business Performance

Table of Contents

1. Sailing Into the Storm: From Execution to Innovation 3

2. Tech Industry: Commodization, Consolidation, Consequences 6

3. Tech Industry: Innovators, Survivors & Also-rans 7

4. Tech Industry: APPL vs. MSFT vs. YHOO Wars 8

5. Disruption vs. Innovation: Change, Response, Resilience 10

6. Bidding Review: Macro-environment, Disruptions, Business Performance 14

7. Run For Daylight: Innovation, Innovation, Innovation 20

8. About Llinlithgow Associates 24

Page 2 of 24
 From Aha to KaChing: Innovation and Business Performance

Sailing Into the Storm: From Execution to Innovation

http://llinlithgow.com/bizzX/2008/04/sailing_into_the_storm_from_ex.html
Posted by dblwyo on April 27, 2008

Our normal sequence would call for taking up the market situation but that's not only too depressing, for several
reasons, but Sun. seems more suited to reflection on big issues. So we' re going to focus on Innovation. Now
hopefully some previous posts have established the motivation for that, and they' re listed below the break, but in
discussing sad, not so sad and good stores about business performance a couple of themes emerged. One of
course was good execution and another was balancing strategy with operations. But if you review some of the
readings sustainable long-term performance, by which we mean growth in revenue, profits and earnings, also
requires adaptability and invention. Innovation in other words. And when you look at the examples from HPQ to
P&G you can see where this is all born out. And conversely when you look at the sad stories where the counter-
examples also support the argument.

But in case you need more convincing or, better yet, you'd like to
see it explained by somebody with a real track record of both
sustained performance and sustained change management we' ll
point you at the recent appearance of A.G. Lafley on Charlie
Rose. http://www.charlierose.com/shows/2008/04/23/2/a-
conversation-with-a-g-lafley

IOHO this ought to be required listening in every MBA program

and executive suite in the country. As well as by every analyst
mistaking this quarter for infinity and beyond. Another interesting
exercise is look over the recently published list of the Fortune
1000 and see who ranks where by revenue, profit and return.
You' ll have to do some eyeball work as the story behind the
ranking won' t just jump out but a couple of themes emerge. One
of course is energy and hot commodities. Another is folks who' ve
been franchises and moats, e.g. WMT and MSFT, who continue
to enjoy the fruits of the legacy for now.

But you' ll also find some of our exemplars moving up those

ranks as well. The other thing you' ll notice is that ten years it was all about "technology" per se. Now it'
s about
changing the way you do business, bring products to market and is beginning to appear across leaders in all
industries.

There'
s a lot of confusion about innovation, especially as distinct from invention and raw R&D.

We define Innovation as the ability to create new products, services and business models that deliver
value to the customer profitably. And sustain that over a period of time. Enterprises that can do this are
rare but they are the ones who'll do more than merely prosper in the coming storms. And notice some of
the subtleties. Innovation is not number of patents, % of revenue spent on R&D or any of those similar
metrics. Heck, by those measurements Ford is an innovative company. But what has it to show for it ? Or
the Auto Industry in general.

We were happy to hear Mr. Lafley not only has a similar view but is very eloquent both on how hard it is and how
important. But also on how becoming an innovative company requires a fundamental change in every aspect of
the company. In other words this is NOT about what happens in the lab but the ability to look at the market,
develop new products, make them and then delivery them. And then repeat.

Page 3 of 24
 From Aha to KaChing: Innovation and Business Performance

After the break we' ll share some of the conceptual framework we' ve developed over the last several years for
what' s required, what the typical problems are and what an integrated approach to innovation should look like. At
the end of the day this matters to investors, stakeholders, employees and any other related party because the
closer a company gets to these "Should-Be" ideals the more likely it' ll be on the list in another ten years, or 20...or
30 or....well you pick your horizon. One warning note - right now US companies have something of an advantage
in this business "software" but our friends in China, India and elsewhere know that and are taking steps to
improve their own capabilities.

Product Development As-Is

The problem with most organizations is that

innovation is viewed as an isolated, stove-
piped process which occurs, to the extent it
does, within the confines of the R&D
organization. Which is itself isolated from
marketplace and customer realities and
disconnected from the downstream activities
that turn bright idea into invention into
profitable innovation.

The picture of things as they are looks something like the chart at right. All to often the way products are improved
or created starts with a "bright" idea (or just history for that matter) which is thrown over the wall to Design and
Development. The result is then forced thru a manufacturing (make) and packaging process and then Marketing
puts lipstick on the pig while Sales is handed the fun task of forcing it down the throats of the customers. In those
few sentences we' ve just summarized, for example, the typical process in the Auto Industry. Which, sadly as
some of the earlier readings, e.g. the story of the Taurus, show that they in fact know better. But don' t do it on a
sustainable basis.

The Capabilities vs Knowledge

Gap

The primary reason is that companies tend

to focus on what they' ve done, if for no other
reason than it's what they know, have the
current capabilities (here labeled
technology) that' ve built up over years and
decades, it's what they' ve always done and,
worst, have interests inside the company
who' re invested in continuing to do things as
they've always been done.

Most of the bad performers on our previous

lists suffer from this Customer Requirements vs. Inherited Capabilities Gap. Whether it's software companies
building applications that don't meet customer needs, auto companies building cars that no one wants to buy or
pharmaceutical companies making yet one more variation on old, tired drugs the inability to match marketspace
value to capacities is the most fundamental barrier to Innovation. We'd even go so far as to argue that this
describes the content generation processes (WRFest (Telemediatainment): The Content Who Would Be King)
of the media and entertainment industries. Compare Disney and Pixar for example to the last bunch of multi-$M
bombs :)!

Page 4 of 24
 From Aha to KaChing: Innovation and Business Performance

The Three Gaps

That fundamental gap is composed of three

major breakdowns. The first and most
fundamental breakdown usually lies in a
lack of understanding of how customers
actually function. That is a lack of
understanding of how their businesses work
in commercial and industrial sector or how
customers live their lives in consumer
sectors. So the first thing to repair is the
focus on internally generated ideas with
learning those things. In other words
replacing "not-invented-here" with "how it
works really".

Related to that is the Marketing gap where

most enterprises go to market with the story
they want to tell rather than the story that
explains how they' ll benefit their customers.
This btw is a great index that any outside
observer can use to judge how truly
customer focused any company that claims to be innovative is. Do they truly understand and talk to their
customers the way those customers would like to be talked to ? The twin of the breakdown in Marketing is a
parallel breakdown in Sales where yet another salesman shows up to talk about the latest brochureware. As a
friend of mine said, "no matter how busy I am any salesman who' s there to talk about solving my problems will get
time. But most of them are there to sell me another pig in the poke where I have to figure out what it'
s worth".
Successfully innovative companies sell (and service and support) to their customers value propositions.

How It Should/Could Work

The chart at right shows how Innovation

should work if it'
s done right. Here what
you see is an integrated, closed-loop and
end-to-end view on Innovation. Which
strangely looks more than a bit like what
Mr. Lafley discusses in his interview.

It starts with analyzing the markets and

customers, translating that into a deep
description of the real needs and
characteristics of those customers and
then turning those into high level product
designs. That' s then passed on to
operations in an integrated, not throw it
over the wall fashion, where manufacturing
and delivery requirements are incorporated
at the earliest design stages. Not as after-
thoughts. In other words innovation
involves putting all the relevant disciplines onto the same team and operating concurrently, with feedback and
feed forward. Not as one isolated stovepipe after the other. Again something Lafley emphasizes strongly.

Page 5 of 24
 From Aha to KaChing: Innovation and Business Performance

Finally, with this deep understanding of the customer, the entire Go-to-Market and Service/Support operations
inherit a basic of customer value propositions. The other thing that happens is that each stage is used as an
information gathering and feedback mechanism to make sure that innovation is continuous and adaptive. Finally,
as Lafley continuously emphasizes, you have to organize around these sorts of processes. Companies that put
these sorts of innovation capabilities in place, invest in them and maintain them will be the ones who will establish
long-term survivability and prosperity. These are the ones you want to invest in or work for or work with. Good
luck.

Previous Posts
Performance Assessment Basics: Five Fundamental Factors
Business Performance II (Readings): Performance, Pain and Prospects
Business Performance III(Readings): Sad Stories, Good Stories & "Fixes"

Tech Industry: Commodization, Consolidation, Consequences

http://llinlithgow.com/bizzX/2008/04/wrfest_30mar08tech_industry_co.html
Posted by dblwyo on April 3, 2008

In case noone' s noticed the Technology Industry

as a whole has reached the point where it is
mature, which we define as being able to
provide products and solutions who' s
capabilities exceed customer requirements. If
that sounds a bit like Clayton Christiansen's
arguments in the "Innovators Dilemma" it should
because it is. In fact we'
re on record as arguing
that the PC industry reached that point circa
'98/'99 when speeds and feeds were adequate
for the software, e.g. Word, who' s functionality
was well beyond any reasonable cutoff point,
say 60/40 and meandering around the 95/5 or
worse. Unfortunately costs tend to go up non-
linearly as you add bells and whistles.

The chart at right traces out this industry

dynamic. It' s kind of simple but hopefully it gets
the point across. We show customer
requirements slowly evolving over time along
with two products which have high demand
initially because the gap between requirements
and capabilities is large and negative, that is
customers want more than can be delivered.

New products may have some special capability

or vastly lower cost but not meet current
requirements and have to be introduced in a niche. So does a company keep investing in old products or gamble
on new and jeapordize the franchise and cash flow ? You have to apply this thinking to each major business
segment in the stack as well because their history, status and outlook are all different. But for the bottom layers of
the stack, by and large, capabilities vastly exceed requirements. The top layer, applications and business
alignment are very different as the capabilities are vastly exceeded by requirements, especially in the SMB space.
But NONE of the customers believes the industry can deliver value-enhancing, business-driven solutions. As you
go thru each of the readings below you might keep all this in mind because a lot is explained.

For example Dell is outsourcing much of its sourcing to China which it wouldn'
t do if innovation were still the main
driver. Similarly IBM has developed a reputation as the steady-goer but when you look at its'financials and

Page 6 of 24
 From Aha to KaChing: Innovation and Business Performance

investor presentations most of the earnings growth comes from buybacks and other financial engineering.
Similarly Oracle'
s acquisitions sprees are hallmarks of a mature industry.

For a short introduction to how the industry changed and evolved in the ' 90s you can read and download this
short note on industry evolution: Technology Industry Changes and Evolution. BTW just in case you' re
interested in understanding the history of the technology and consumer electronics industries, who the players
were/are, how they did and why and how the ecology of the industry was shaped and evolved over decades we
can' t recommend enough Inventing the Electronic Century: The Epic Story of the Consumer Electronics and
Computer Industries, with a new preface (Harvard Studies in Business History) by Alfred D., Jr. Chandler. In or
humble opinion a great, insightful and well-written book that any serious student (investor, employment, market
player) would benefit from reading. For our prior posts on the stack, industry evolution, business vs IT alignment,
et.al. issues see the industry archive where we' ve built up quite a "stack" of charts to help you with your analysis
ala Buffett'; that is understanding as best we can manage how the business works :).

Tech Industry: Innovators, Survivors & Also-rans

http://llinlithgow.com/bizzX/2008/04/wrfest_27apr08tech_ind_innovat.html
Posted by dblwyo on April 29, 2009

Here' s an interesting accumulation of Tech-related readings (after the break) that are worthwhile in their own right
but also are perfectly illustrative of many of the themes we' ve tried to strike here. Both for the Tech Industry itself
and for it'
s inter-actions with the larger economy. Most of us, myself included, have this wonderful, romantic view
of the Tech Industry as being its'own thing running on an internal dynamic. Unfortunately most of the major
names are now mature companies struggling to find the NBT (next big thing). Worse many of them are
experiencing severe organo-sclerosis in their core disciplines. Tech is not the only industry driven by Innovation
however. In fact it is more central to the Pharmaceutical and Aerospace industries than what we traditionally think
of us tech. And, as I hope we' ve established, innovation is returning as a fundamental requirement for survival let
alone prosperity. Put all this together and you
have two broad mis-conceptions to adjust:

1. Patterns of Innovation: Once a company or

industry matures it is no longer driven by internal
dynamics, e.g. the famous "S-curve" of fame and
fortune. Worse when a company is used to living
on the curve it gets both complacent and, with
growth, harder to manage. Often its'core
disciplines deteriorate as well, so that one ends
up with desperate gamble after desperate gamble
to recover the glory years. There are however key
players who have managed, thru discipline,
execution and insight, to find sources of renewal.

2. Business Cycles: once you' re off the curve

then you become just another capital "equipment"
supplier (or consumer supplier for those migrating
into the entertronics industry). Which means
normal business cycle consequences begin to
show up. In this downturn, which we' ve barely
seen the beginnings off, first consumer demand
will slow and turn down, likely severely. And
companies will cut their hiring and capital
expenditure plans. All of which we' re beginning to
see and more of which is coming. As IT budgets
are constrained what do you think happens to IT

Page 7 of 24
 From Aha to KaChing: Innovation and Business Performance

spending and tech industry outlooks? Wouldn'

t ask the analysts on the Street :)

The trick is to sort out the survivors from the also-rans who are going to struggle. And then sort the
survivors into the so-so'
s and the real men. As you skim over the readings we think the portents for the future are
pretty clear. Which means in terms of evaluating investment and performance we' re back to asking Economy -
Industry - Company questions. You' re hopefully looking for the companies with the skill, chutzpah and resources
to gain new high ground. And IOHO those are the folks who' ve re-made or are re-making themselves. Those will
be the buying opportunities after we get thru this current unpleasantness.

A perfect contrast is AMD vs. Intel. The former had a hit but failed to follow-up, sustain it or execute. Instead it
made an acquisition gamble looking for the easy fix. In stark contrast Intel transformed itself by building on it's
base skills in chip design and manufacturing as well as operational excellence and is now extending those
capabilities to whole new markets. (We can' t recommend some of the last investor presentations highly enough
btw). MOT is the perfect poster child for what we' ve called decliners in the charts. IBM on the other hand could
serve as the example, if not exemplar, for the sustainer.

The real interesting contrast is APPL vs. MSFT. There are a lot of readings below but consider what we think is
the most fascinating and powerful contrast. At it'
s heart MSFT is a software company and it' s most fundamental
discipline should be product development. Yet it delivers Vista late, emasculated, bloated, missing an ecology and
buggy. What Longhorn was going to be and what Vista became reduces in large part back to Code Red - when
internal development broke down almost completely and they had to do emergency surgery.

In contrast Apple made a decision to create a new, elegant, powerful and portable OS that not only drives Max
OSX but the iPod and iPhone because it' s modular, componentized and scalable. (Shades of NEXT and it' s
object-oriented OS and application platform). That means that every product Apple makes runs the same
software base and therefore can share applications, within limits of course. So MSFT is wrestling its'own kudzu
and Apple has created a self-sustaining, evolving and growing eco-system. Which holds the most promise for the
future do you think ?

Of course there's many a slip 'twixt cup and lip and MSFT is still a huge, tightly run profit machine and Apple will
need to sustain it'
s innovations with the NBT on top of this wonderful foundation. Which merely makes it easier
and more likely. But it'
s looking like Apple joins Cisco and Intel in that pantheon of folks who've made the
necessary cultural changes to embed innovation in their DNA. (Sailing Into the Storm: From Execution to
Innovation)

Tech Industry: APPL vs MSFT vs YHOO Wars

http://llinlithgow.com/bizzX/2008/05/tech_industryappl_vs_msft_vs_y.html
Posted by dblwyo on May 14, 2008

Let's take a look at the big tech news from the last week or so (deferring the HPQ/EDS discussion for now) and
focus on the APPL vs MSFT and MSFT vs YHOO campaigns. In both of which there was some big news
everybody covered and some that may have passed you by. In an earlier post/survey (WRFest 27Apr08(Tech
Ind): Innovators, Survivors & Also-rans) we introduced some ways/weighs of thinking about innovation and
typical patterns. You may want to refer back to that as here we' re going to build some more charts to dig into
some other patterns to set the stage for our discussion. You might also find reviewing the earlier discussion
(Sailing Into the Storm: From Execution to Innovation) of innovation a worthwhile review, especially if you buy
the argument that Innovation is not just an issue in the Tech Industry but is both a general requirement and the
biggest challenge beyond Execution facing all businesses. And one that most are failing at. We think the
framework for analyzing what works and is required vs the typical barriers applies to P&G just as much as to
MSFT...a view which, judging from public statements and observable behaviors, P&G agrees with.

Page 8 of 24
 From Aha to KaChing: Innovation and Business Performance

So consider the chart at right, which shows how

many companies face the "Renewability
Challenge". Chrysler is almost the perfect poster
child, along with MOT, of a company who lurches
from breakthru hit to hit and hopes it survives the
downturn. That behavior is apparently deeply
seated in its'culture. What you' d like to do is have
good strategy, translate that into excellent and on-
going execution and, on that foundation, build up a
repeatable capability for innovation. And better yet
embed that capability into the core of the
Company. A path that Lafley at P&G appears to be
well along on after close to seven years of hard
and sustained effort.

There are two big questions. First, can you get the
Innovation process going on a regular and speedy
cycle show that new products and offerings begin
to take off before the old starts into decline. And
second, and as or more important, is the question
of what path is the Company on. That is are
innovations moving the company forward, marking
time or eroding despite apparent cleverness.

When you think about the Big Three here you reach very different conclusions. Apple appears to have created a
sustainable culture of Innovation with one hit following another. Admittedly largely due to Steve Jobs...yet none of
the major innovations Apple has produced are from a one-man band but represent the efforts of entire teams. And
even more interestingly, in a rather Disney-like fashion, Apple is beginning to see cross-feeds and synergies. The
iPod effort led to the iPhone, which was and is a major breakthru in the entire Telecom business model. Both
together are causing a rapid growth in Mac sales. Even more importantly big business is beginning to give serious
consideration to Apple computers. A critical strategic enabler is a brilliant decision on the Operating System which
is modular and scalable. All Apple lacks now is a portfolio of small business applications along with a good
development platform. That would allow them to become a major player in the empty dumbbell space of ill-served
SMBs. (WRFest 2Mar08(Technology): Small to Large - IT Industry Structure)

In contrast MSFT has not only failed in its Yahoo acquisition - which you may recall we thought was a disaster
from the get go.(B2C Wars:Yhoo/MS Merger - Disaster in the Making ?) But it really hasn' t had any major
successes in any of its'new endeavors in years. Instead it' s milking the cash cows and monopoly positions it
enjoys in OS share and Office Suites. And doesn' t appear to have made much, if any, headway in the SMB
space. Largely we' re given to understand because of a lack of cultural understanding of the applications
development process. Now apps are different from middleware, culturally as well as technically. Yet at the end of
the day MSFT' s core competence MUST be software development. Yet we ended up with a new OS (Vista) that
was grossly de-featured from the original innovations promised in Longhorn, has been rather badly received, even
resisted as it doesn't provide significant advantages over XP and throws open the door to competitors. Particularly
in the business marketspace.

How ' bout that YHOO ? Well after the initial breakout as the most successful portal, with a business built around
display advertising it failed to find a way to grow that business. Terry Semel was brought into to provide a little
adult supervision, which he did and effectively, but his "new media" initiatives, which presumed that increasing the
portal attractiveness and thereby number of eyeballs, both built on the display advertising theme and failed.
Meanwhile of course GOOG' s wild, and unexpected, success with search-based advertising blind-sided them
completely. So what does Yahoo do now? So far it' s failed to take its'huge footprint and sustain it, failed in
developing its'own superb search engine (though admittedly with major improvements) and faces an incredibly
daunting uphill battle given Google' s share, penetration and street cred. Nor can it tell us what it wants to be when
it grows up.

Page 9 of 24
 From Aha to KaChing: Innovation and Business Performance

Looking at the chart and the three different timepaths illustrated we could just about assign names to each path:
Apple, Microsoft and Yahoo. These interesting times are really tough. From a stakeholders perspective you' d
have to argue that Apple has found a sustainable path that appears to make it a great place to work but one that' s
more than fully valued in the markets. That MSFT is suffering from Red Queen syndrome with major investment
after investment that have not succeeded in major incremental growth opportunities. Which makes it an
intermediate-term value play and a long-term question mark. For Yahoo the future is now - they appear to be
locked into downward path that may metastasize into a death spiral if they don' t pull themselves together, execute
enormously better and deliver value to existing users/customers and find new paths (visions, value props,
strategies, business models) forward. At best this is a "turn-around" opportunity but it' d take time, money, blood
and enormous effort.

Disruption vs. Innovation: Change, Response, Resilience

http://llinlithgow.com/bizzX/2009/03/disruption_vs_innovation_chang.html
Posted by dblwyo on March 15, 2009

On the "oh what an interesting, small

world" topic a friend's post led me to an
HBR post which in turn led me to a series
by John Hagel, John Seeley Brown and
Lang Davison on the coming "singularity" -
a major, discontinuous disruption in the
business and geonomic environment. As it
happens their diagnosis of the reason has
to do with Technology - not a surprise
given their backgrounds but a tad narrow.
We happen to disagree with them on the
trigger, agree with them on the singularity,
think it'
ll be even bigger than they say and
involve more factors.

The nature of the singularity - the

appearance of continuous disruptions
that will prevent a return to some sort of
punctuated equilibrium – will continue
for a long-time. Perhaps, and we think it
likely, forever.

Having spent the last six straight posts

diving deeply into the dimensions of the
Singularity and documenting it with big
inventories of readings we won' t review it but you may recall this "kitchen-sink graphic" that was our Mantra
Mandela...the mantra being Geo-politics/Economy/Industry/Company of course :). The accompanying graphic
tries to represent the scope and scale of these disruptions we' ve been documenting on a firm, industry, economic
and geo-political level as well as relate it to our on-going concern with enterprise and organizational performance.
One of the interesting excerpts is a post by Irving Wladawsky-Berger on re-architecting the enterprise from a
holistic perspective. Couldn' t have put it better ourselves - in fact that'
s such a central concern of ours it shows up
in most posts directly or in-directly and has it's own archive.

One of our key findings is that, with occasional exceptions, very few concerns are prepared for the changes
they'
re failing to meet now, let alone the singularity. Which, btw, is a matter of leadership among other things,
which is why the readings start off with Cramer' s recent startling Mea Culpa on the John Stewart Show. On the
other hand there are the WMT' s and MickeyD' s of the world who have started and made serious progress on
"whole enterprise" re-factorings (WMT as Performance Exemplar: Re-Think, Re-Factor, Re-Energize); also a

Page 10 of 24
 From Aha to KaChing: Innovation and Business Performance

matter of leadership! The readings contain excerpts from a bunch of the key posts on disruption and response
and then another slew of carefully selected examples from just starting to profoundly well along. We' d also point
to P&G as another exemplar for resilience and innovation (Sailing Into the Storm: From Execution to
Innovation) as well as a host of the Tech Industry archives that dove deeper into various models of change and
innovation. For the rest of this post, having discussed "big picture" and enterprise disruptions we'
d like to focus on
the lower R.H. component of the Mandela and talk about industry innovation and the Next Big Thing (NBT), which
is a primary driver of all the rest and/or an enabler.

Innovation and Disruption

The History of the NBT: This little

graphic illustrates the socionomic history
of the US, and to some extent all
developed economies depending on
when and where they got on-board the
train. As not quite a sidebar notice when
you match these changes and their
disruptions you get an amazingly good
match to the 18 year cycles that the
market mavens keep talking about. A
correlation, and we think a causal linkage, which as far as we can tell hasn'
t been explicitly made elsewhere. But
one that explains an enormous amount about company, industry and economic performance as well as the
associated socionomic changes.

Post-WW2 Business Changes: if the previous chart tell us how technology, business and social change led to
Industrialization and the emergence of Mass Markets this one breaks down some of the more recent history for
how that evolved. Consider that post-WW2 we had four major new industries (Plastics, Pharma, Electronics,
Transportation) that were based on pre-war invention, wartime investment and innovation and post-war
implementation.

The entire "golden" age of the ' 50s,

which saw the rise of a prosperous
middle class for the first time in human
history was built on these foundations.
At the same time all these disruptions
matured and at minimum leveled off or
began to decay. For example the
Pharma industry has been pursuing
mega-blockbuster hit derived from it' s
chemistry-based R&D strategy and
associated business models and
strategies. Yet we've known and
noticed that that model is beyond
exhausted and there' s no more major value being created. The industry is struggling with a disruptive shift to a
biology-based model and clearly hasn' t found the way forward as yet. They'
re not alone either, as the top bar
shows - between maturity, value saturation, a globalizing economy, et.al. you can sort and categorize the
headlines and business book titles and consulting gurus of the last four decades. So what happens next ?

Page 11 of 24
 From Aha to KaChing: Innovation and Business Performance

The Next Wave of Innovation: well

here's where we think things are going.
This isn'
t an entirely ill-informed
prognostication but it's not cast in
concrete either. That said it' s held up
pretty well over the last few years while
we've developed and used it. Basically
we see three phases which are probably
more over-lapped and inter-dependent
than shown but still representative.

The current phase where enterprises

need to re-invent themselves as WMT,
et.al. have done, but few others; and
which' ll exponentiate in the next decade
as the foot-dragging and systemic
disruptions accelerate. The emergence
and evolution of new firms, worldwide competition and new industries and the morphing of old ones. For example
this last two weeks has seen newspaper bankruptcy announcements galore but nobody has come up with a
viable New Media business model yet. TBD and watch this space. (Key Postings Vb (Technomediatainment):
Maturities, Barriers and Disruptions).

Putting It All Together

If you put all the pieces together into

one chart here' s what we end up with.
Disruption will indeed continue.
Whether the Singularity will be
continuous small- to medium-scale on-
going disruptions or drumbeats (Taiko
anyone?) of major structural changes
we' ll find out. But if you think there'
s
some merit and evidence so far for the
historical accuracy and current
assessment consider the last phase.

Right now we' re trapped in an

environment where there is no NBT
because it takes years to go from idea
to invention to innovation to investment
to market/industry development. On
the other hand that means that you
can see a lot of it coming if you know
where to look. The other huge
disruptive force will be the need to face
up to the narrow window of bringing all
the world's people into a prosperous
middle class in a stable and effective
geo-political environment.

In other words this weekend' s G-20 crisis conclave might just be a good rehearsal for the bigger changes coming
down the pike. And it' s by no means guaranteed that we' ll work our way thru with style and grace. But considering
the alternatives let's hope so. On that assumption though think about the world we face from an opportunity point
of view - P&G circa the ' 50s except for billions of people and whole new sets of consumer products and all that
implies for all the associated industries. Not to mention new biologics, energy and materials solutions and on and

Page 12 of 24
 From Aha to KaChing: Innovation and Business Performance

on. Future generations may look back on it as a great age of romance, discovery and innovation. After all they' ll
have to won' t they ? Or not care at all ! But when you dig back into the last great age of exploration you find out
that things weren' t so easy and romantic at all !

Readings and Observations

The last part of the readings brings us full-circle back to the questions of enterprise response to these crisis
(Risks + Opportunities, right ?). Stories cover the range from manufacturer' s struggles with lean to Chrysler' s
desperate gyrations to get itself out of a terrible box to the Pharma industry' s metastasizing shakeouts that' s
crossing a cusp point this last week or so. Talk about punctuated equilibriums ! Or punctured as the case may be.
On the other hand there' s a great story on MickeyD' s continuing renewal and adaptation efforts as well as the
beginnings of Yahoo' s long postponed ones. And then two of our favorites. One on how that big old stick-in-the-
mud Exxon has suddenly woken up - or was it carefully positioning itself ? :) And then a really interesting new
initiative from WMT in medical records that' s startling and stunning in some ways but leverages existing
capabilities in others. In this era of needing to holistically re-think business management we' ll close with two final
observations.

One is that the ultimate arch-guru of management

Peter Drucker provided the single best bible for re-
thinking the firm we've ever seen (Management:
Tasks, Responsibilities, Practices by Peter F.
Drucker). Sadly though he wrote it at the time and
found that the pre-war innovations and post-war
adoptions had reached saturation and we needed to
move to a whole new level. Sadly ? Well he published
that book in 1973 and as far as we can tell none of his
breakthru ideas and approaches has been tried. The
second is that, among all the other factors, you need to
understand industry dynamics and structure (Key
Postings V: Industry Analysis - Enterprise, Industry
Ecology, Evolution). For example one reason that
XOM is so brilliantly positioned is that it's built up huge
cash reserves, vast technological and management
capablities and timed it just right. (Oil Industry
II(Analysis): LT Supply-Demand, Outlook and Disruptions)

You see when you look at the accompanying chart we' re still in a world where, if growth resumes, demand will be
greater than supply and then is not the time to invest in exploration, reserves or acquisitions. NOW is !

Page 13 of 24
 From Aha to KaChing: Innovation and Business Performance

Bidding Review: Macro-environment, Disruptions, Business Performance

http://llinlithgow.com/bizzX/2009/05/bidding_review_macroenvironmen.html
Posted by dblwyo on May 19, 2009

Over the last several months we' ve been

hammering away at various aspects of business
performance from individual companies to whole
industries to structural trends and disruptive
changes in the macro-environment. Before going
on to finish some deep dives we figured it was time
to pause for an inventory and survey of some key
results, findings and concepts. The graphic is our
Table of Contents - or more accurately a structured
inventory of the topics we repeatedly turn to
because we think these are the key elements that
MUST always be kept in mind when evaluating a
business and it' s performance. A downloadable
PDF version is available by clicking on the
highlight.

When we inventory the actual posts in key topics

the major themes are the series on Corporate
Governance and Social Responsibility - at which
so many have failed so badly, obviously including
the Finance Industry which is worsening a bad situation by denial, the Auto Industry going down the Maelstrom it
created and taking the livelihoods and lives of so many with it but also many others.

Which leads naturally to questions and assessments of

Enterprise Performance - which was the focal topic of
the last post so we won' t repeat our and BCG' s
indictments. A key strategic issue is the scope and
scale of disruption - not just within the firm but at the
Industry, Economy and Geo-political levels; and how
badly most are prepared or preparing for the multiple
cusp points we' re all going to be crossing over in the
next few years. The downloadable PDF version
(http://llinlithgow.com/bizzX/BizzCharts/BizzPerfor
m2KeyPostUpdate.pdf )of this inventory is also
available by clicking on the highlight.

Sadly we confess that the blue-highlighted titles which

should take you to a post don' t since we haven't figured
out the technique/technology that well. In the inventory
though you' ll find pointers back at key exemplars of
companies who are adapting (WMT, GE) and
industries who are struggling or worse. Including Autos
and Finance but also, and perhaps surprisingly, Technology.

Page 14 of 24
 From Aha to KaChing: Innovation and Business Performance

Guidance From the Master

In the rest of this post we want to spend some

time focusing on key concepts and arguments
that have accumulated in all those posts,
starting with core principles that should guide
business performance but don' t appear to. For
those principles we' ve looked to our own work
and techniques, Warren Buffett and, most
especially Peter Drucker. When Prof. Drucker
passed a few years ago the WSJ had a nice
review of some recent survey work and gifted us
with this summary of his key arguments (from
which we think at least two key ones are missing
but we' ll circle back later).

Now we' ve also taken the liberty of creating a

collection of this and other principles as well as other key charts from these posts that is also downloadable. In it
you' ll find major graphics on Principles (Drucker, Buffett, ours), the composite mantra of "situationally aware"
business management that monitors and acts on Geo-politics, Structural Changes, Economic Cycles and
Enterprise Performance. Consider that a Table of Contents which has some key charts in each area. For example
on industry structural change (Autos, Finance, Energy, Technology) and on a blueprint for analyzing business
performance, based on our BizzXceleration Framework. That starts with simple questions and heads toward the
engineering assessment tools. "Elements of Business Performance"
(http://llinlithgow.com/bizzX/DloadFiles/BizzPerformElementsCollect.pdf )is downloadable - happy reading.

Situational Awareness: Monitoring the Environment

The accompanying graphic is

probably pretty terrible by Edward
Tufte's standards let alone by Seth
Godin' s. Sorry about that but our key
message is not so much as the
specific content as trying to show all
the things in one ideographic
composite that a business must
monitor and act on.

The "Elements" download actually

has the separate components plus
additional ones so if you want to
dissect them, again, dload the file.
After all if you actually hired a
consultant to do the work and
customize it for your situation it'
d cost
a lot of money :).

These are the major domains in

which the world is under-going major
structural changes, and only one of
them is under the control of
management. They are, moving
around the clock, the Geo-political

Page 15 of 24
 From Aha to KaChing: Innovation and Business Performance

Macro-environment, the Economic Crisis, Structural Changes in industries and the nature of business and the key
components of the integrated and performing enterprise.

Welcome to the Storm: Scope and Scale of Disruption

Just to put a point on it, flat-footed as most have been caught, you have to wonder how many executives,
investors or other stakeholders are really thinking about how many things are changing by how much.

We' ve tried to map out what's going on in this graphic to illustrate those points. Most management teams have
grown up with a lot of churn and turmoil inside their firms but it's been a long-time indeed since this many things
have been disrupted this much, this
fast.

We' ve defined five levels of disruption

that are going on simultaneously:

1) within the firm,

2) the need for treating the firm as a

whole, not just piece-parts,

3) industry and sector changes,

4) worldwide economic changes and

5) geo-political changes.

It'
s a sad fact that most efforts, such
as they are, are confined to #1 and
ignore the other, and more important
four! AT least IOHO!!

Business Performance and the Whole Enterprise

Like we said the key between things that can' t be
controlled but must nonetheless be managed to is
the way the firm faces these changes. To wrap-up
the introduction let'
s return to the words of the
Master on what the primary tasks of management
should be. It doesn' t get any clearer than that, does
it? Management is charged with turning the
component parts of the enterprise into a whole
that's more than the mere sum of the parts. Ask
yourself, for example, why the USA Olympic
Basketball Team did so well this last Olympics and
so poorly in '04?

It'
s because the latter was a collection of individual
stars who played their own game for their own
advantage. The former was a team where every
player was focused on the performance of the
entire time. The results tell the story. The same is true of the enterprise. But that was just one tournament - a
business is much bigger than a sports team and exists for a lot longer. No decision taken today can exclusively
focus on today' s best advantage, nor on tomorrow' s. Each decision must act to maximize the sustainable
performance of the enterprise on a balance between the short- and long-runs. The fact that Detroit is now a black

Page 16 of 24
 From Aha to KaChing: Innovation and Business Performance

hole of subsidies, job losses and collapsing local economies as expedient short-term decisions bring home the
consequences of ignoring the long-term impacts would seem to prove the argument.

After the break you' ll find some more key exhibits along with discussions on several of these key points, if not all
of them. But the bottomline here is that we are crossing over the boundaries into an era of the biggest changes in
the macro-environment and performance requirements in many decades. A crossing which will impact us all and
one for which we' re seeing little concern or preparation.
We hope you find this summary, wrap-up and interpretation helpful. It' s the end-result of several months of work
here and, taken all together, we hope it provides a useful toolkit for evaluating business performance in turbulent
times.

Environmental Changes: Geo-politics and Industry Structure

In the "changes composite" two of the quadrants

were concerned with geo-political factors and
another was concerned with industry and business
changes. On the former we' ve used the 4-
quadrant environment chart several times so we
won' t go back into it but do want to review the
industry structure chart, at right. Now we went thru
a detailed chunk by chunk discussion earlier
[Disruption vs. Innovation: Change, Response,
Resilience] so our apologies is if this brief.

The things to bear in mind here is that our modern

economy has been shaped entirely by the rise of
large business enterprises which have been the
creators of our present prosperity. How well they
function is crucial to the healt of society as a
whole. Yet this position of structural dominance
really only dates from the 1870s or so, at best. The
center block shows the major evolutions in key
industries and innovations along with the forms of
business organization that went with them. The top
chunk traces out the various sub-trends in
business operations over the last decades while the bottom one looks ahead to the kinds of environment and
innovations that are likely. Something very interesting to note but if you match up the periods of the industry
changes to major periods in the stock market they' re highly correlated.

Business Cycle Outlook

As much time as we' ve spent dissecting the business

cycle, economic data and the economic outlook we
probably don' t need to dive back in too heavily here,
right? However here' s a relative recent version of the
business cycle with the alternatives and likely
pathways laid out. The rapid V for vapid recovery
scenario is one with the rest of the extinct memes
while the 2nd Great Depression also appears to be
fading.

The lessons remain what they are and have been

though:

Page 17 of 24
 From Aha to KaChing: Innovation and Business Performance

1) We haven't reached bottom, only starting slowing down,

2) there's a long-way to start growing again,

3) this will be a very weak, sustained and fragile recovery and

4) nobody's prepared for it because, for some reason, they don't see it this way or are locked into
denial.

Mindsets, Tactics & Resiliences

With so much changing so profoundly and rapidly it all boils down to how
executive leadership responds to the changes around them; in other
words how do they see the world and what filters do they use to interpret
it. This is really a time for re-thinking business models, strategies and
core value propositions. And then translating those re-thinkings into
fundamental changes in functional capabilities. The sad fact is that the
necessary mental re-building, which precedes the actual activities in the
real world, seems to be badly lagging behind events in all too many
cases.

Case in point would be the results of recent BCG survey work, which we
reviewed earlier, but is worldwide across all industries and many
different-sized companies and about six+ weeks old at this time. Judging
from these results the "proper" response was anticipation, preparation
and execution. Actual response was ignorance, denial, panic, meat-axe and it' s still going on. If you look at the
second panel of this composite which traces out the response being prioritized by these companies the primary
emphasis is on short-term responsiveness, not long-term re-positioning. It' d be nice to have a little more detail but
a survey doesn' t lend itself to that approach. Necessarily cost cutting and revenue maintenance are high priorities.

From the results it would appear that re-

prioritizing capital investments, continuing
to support R&D, ensuring the viability of
the supplier network and similar strategic
positioning initiatives are getting short-
shrift.

Yet for those companies that have gone

into this crisis with strong operations,
good controls, good balance sheets and,
in the best cases, already been re-
factoring themselves, this is an
unparalleled opportunity to gain a major
jump competitively. Just as a case in
point we' d suggest that, despite some
serious re-structuring efforts by Immelt at
GE, he too long protected the Capital
division and became over-reliant on it but
is now in a political position, internally
and with his board, to finally begin
building the GE he' s have liked to.

Page 18 of 24
 From Aha to KaChing: Innovation and Business Performance

Of course he'
s spent most of the last decade un-doing Jack Welsh'
s legacies. Bear that in mind.

Thinking Whole Enterprise

If we translate Drucker' s Principles into

specific guidelines that can serve as an
initial checklist of things to think about and
timeframes in which to think about them
we end up with something like this
construct.

HPQ just had its earnings announcement

and call today. It'
d be a very interesting
exercise to go thru that call, line by line
and division by division and ask each of
these questions for each timeframe. For
example PCs are down - what are you
going to do in the next 10 months to
maintain revenues, profits and market
position?

That' s essentially an operational

improvement question. Then what are you
going to do in the next 10 quarters? Go
into new geographies, explore new
distribution channels or introduce new
products? And what about the next 10
years? In other words where do you envision the PC business going in that timeframe? If the answer is that' s to
far away to be clear and too hard and fuzzy to investigate what are you doing to dig into it? We' ll offer up a gratis
recommendation even - the form factor and functionality of the PC needs to be radically changed! Are we right or
wrong? We think we' re right but that'
s not as important as the question of whether or not HP is investigating
alternatives.

One only has to look at the work that Apple did beginning with Jobs'return and the re-design of the Mac and the
subsequent iPod/iTunes to iPhone migration to get an example of how it should be done. Or consider what
Lenovo has been exploring in the Chinese PC market. If you' d like to see this approach applied to the Finance
Industry or the Auto Industry just click on
the highlighted names.

Final Word and Case Theory

Let's wrap this whole chain of argument up by

coming back to Drucker' s basic principles
which we' ll summarize as: 1) create value by
focusing on innovation and marketing, 2)
make the work productive and the worker
effective, 3) set measurable and committable
goals and control to them, 4) be aware of and
manage your social responsibilities, 5)
monitor and manage the impacts of the
external environment and, finally, 6) act to
optimize the balance between the parts and
the whole along with the trade-off between
the long- and short-terms.

Page 19 of 24
 From Aha to KaChing: Innovation and Business Performance

We leads us to this little "Theory of the Case". If you'

d like to see this approach applied to the poster child of non-
performance and malfeasance, at least in a conceptual way, here' s the chart for the Finance Industry.

Run For Daylight: Innovation, Innovation, Innovation

http://llinlithgow.com/bizzX/2009/07/run_for_daylight_innovation_in.html
Posted by dblwyo July 5, 2009

We' re going to focus on innovation - what it is,

how it works, it's role in business performance
and broader trends and implications for the
economy and society. Including the notion of how
to judge it as a stakeholder. As it happens this is
a theme we' ve been striking for some time and
we' ll review the previous discussions later on.
The gist of our hammerings are threefold:

1) Innovation is widely and broadly misperceived

- all to often being viewed as an isolated pocket of
activity and not as the broad multi-function, multi-
process and cross-enterprise set of inter-linked
activities it needs to be.

2) Innovation is generally not well handled - most

businesses will give lip service to the need for
innovation but when push comes to shove they' ll
cut the resources devoted to it. Given that they've
already been doing it badly that may not be such a bad short-term idea but it'
s going to leave them terribly
positioned for the foreseeable future.

3) Performance and competitive pressures are going to see an accelerating macro-scale series of on-going
disruptions from the functional to the company to the industry to the economy-wide scales for decades to come.
Failures to grasp the widespread disruptions that are entrain will lead to the kind of "penalties" that the Auto
Industry is paying, the Finance Industry paid and will keep on paying and will hit every other single industry in the
developed world. The times they are indeed a' changing.

Needless to say, with these recurrent themes in mind, we were absolutely tickled to see Business Week (long a
loud and informed champion of good design and innovation) publishing a story a couple of weeks ago on the
failures of innovation over the last decade. The graphic is borrowed from that story and nicely illustrates the point;
and if you have trouble believing it then ask yourself why 'ol Larry-boy at Oracle has been feverishly consolidating
things, why MSFT hasn' t made any major breakthrus or why the pharmaceutical industry suddenly tipped over
into hard times about 6+ years ago (again something we' ve been arm-waving about for a long time).

Page 20 of 24
 From Aha to KaChing: Innovation and Business Performance

Re-Imaging the Airstream:

Imagination in Action
While we were contemplating this post we
ran across another TED Talk on the
designer who helped to re-imagine the
Airstream Trailer for this century instead of
the last one. His engagement started out as
an exercise to showcase how laminates
could be re-thought for the interior.

What he found was that the Airstream,

originally conceived as a forward-looking
icon of the open-road, freedom and
innovation had received the interior of a '
50s
mountain-cabin. Not bad in and of itself but
not consistent with the supposed strategic
theme; and not likely to appeal to new
markets, like active sports enthusiasts.

Thereby locking Airstream into its old and

dying marketspace. By (literally) taking the trailer down to bedrock they were able to build a prototype that
reimagined the interior and then use to that to re-imagine a whole new and modern trailer with a completely re-
thought interior that was consistent, appealing and which created new value for new markets. There are some
real lessons here that everybody who buys into our basis thesis needs to pay attention....or join the roadkill. (Chris
Deam Re-imagines the Airstream)

Innovation As-Is vs. Should-Be: Going to the Movies

One of the interesting things the movie
industry has started doing is loading up the
DVDs they sell with all sorts of special features
giving you the back-story on how the thing was
conceived, developed and delivered. The first
time we really paid deep attention was listening
to all this was for Sky Captain and the World of
Tomorrow but since then we' ve made a special
effort for every major movie that interests us.

The preeminent example is Pixar and it' s string

of hits. Two things we' d point out about all that,
perhaps three. First, they've proven that they
can keep it up time after time. Second, do you
think it was an accident that (maturity aside)
that after Jobs went back to Apple his long-
standing interest in good design and innovation
took a couple of quantum leaps?

And third (something we gleaned from listening

to the 2nd disc of the Ratatouille DVD set) the
recent string from the Incredible to Cars to Up
was conceived years ago at a restaurant lunch meeting and sketched on napkins. A familiar process for anybody
who' s ever had the joy and terror of playing on the bleeding edge. Of course from napkin to delivery to sales is a
long....long way.

Page 21 of 24
 From Aha to KaChing: Innovation and Business Performance

The graphic compresses the long discussions in a couple of prior posts and also captures 25+ years of sustained
experience in trying to move from how it' s typically done poorly to how it should be done well. Based on that
experience we guarantee that anybody who manages to get this blueprint in place will start having some real
impacts and will, in fact, be able to create a sustainable habit of innovation. Contrawise you can use the blueprint
as a diagnostic of failures. If you were to go back and re-visit the various movies that have been wildly successful
you'll find these arguments supported. You might, for example, compare and contrast Lord of the Rings with King
Kong with typical run-of-the-mill summer thriller. Or consider Pixar or the Harry Potter series as other examples.

All too often what you find in companies doing the lip service thing is that at some point in their history somebody
had a bright idea that' s thrown over the wall to Development and if it sticks (in the marketplace) all well and good.
After the original idea is turned into a product more or less then Marketing is called in to put lipstick and ribbons
on a pig and it's handed over to Sales to push into the customer base. Over a period of time this becomes
embedded in the corporate culture and feature after feature that creates no appreciable new value from the
customer' s view is stuffed out there.

Two major problems exist on this level. First, invention is NOT innovation. Innovation turns invention into new
products and services that create incremental new value, not move beyond the 80/20 cutoff point of death.
Second, the transom-throwing is a Vegas crapshoot that' s playing a numbers game. There' s always going to be
elements of uncertainty but you can change the odds in your favor dramatically by doing it right.

Doing it right starts with understanding customer and market needs, wants, desires, values and characteristics.
Stop me when the failures of Detroit come to mind. Let me stop you if they don' t but pick your industry. THEN the
original problem identification goes thru a Design phase where the market-based, problem-solving goals are
translated into product characteristics. Think about the LofR - Tolkien had a magnificent concept based on his life
experiences and a lifetime of work in mythology and languages.

That got us into the Design stage with the books if you would. Then the script-writing team spent years, literally,
taking the books down to the next level of developmental detail. The extended edition DVD discussions on the
subject are, IOHO, worth the price of the set for this alone. They're also worth it for the discussion of how special
effects, weapons and fighting, horsemanship, filming, production design, etc., etc. etc. were all brought together in
a synergistic blend of functions into a cohesive cross-functional development and delivery team. And serve as a
model for how real, deliverable innovation should be being done by business or any other organization that needs
to create new value.

Innovation Is A Team Sport

That highlights another major facet and the
review of the LofR DVD will flesh it out if you pay
attention and really think about what you' re
hearing. Innovation is not the result of any single
innovator or even a small core. It's the result of a
team scaled to the size of the problem with a wide
and appropriate range of skills all working
together.

Before we run on we suggest you run out and

read Car: A Drama of the American Workplace
by Mary Walton which discusses the design and
development of the Taurus that save Ford when it
first came out. A book that Ford tried to kill
eventually after providing unprecedented access
but perfectly illustrating our points - large and
small. As well as Twenty-First-Century Jet: The
Making and Marketing of the Boeing 777 by Karl Sabbagh about Boeing' s creation of the 777. Guess who the
Program Manager was for that and what he' s doing now? Now the graphic is adapted from the Technology

Page 22 of 24
 From Aha to KaChing: Innovation and Business Performance

business and it' s worked for us for a long time; and contrawise killed us when we couldn'
t get the required
executive support. But if you check out those books you can map what Ford did and doesn' t and what Boeing did
and still does (consider the Dreamliner) to the framework.

A Closing Thought: Tsunami's of Disruption

Just a brief closing thought, having run on at

great length longer than intended. As the world
continues to go thru massive re-alignments, new
countries enter the mainstream of the developed
world and make their own moves up the value-
add ladder of innovation we' re all going to face
continuous disruptions. We can no longer count
on the occasional miracle to save us, our jobs,
our companies or our societies.

On the other hand we' ve coasted for almost sixty

years on the innovations that came out of WW2.
Isn't it about time to do it again? In any case the
choices are not to avoid the problem - only how
we deal with it. The graphic is from an earlier post
that walks thru all this in some detail AND
provides the evidence to back it up. In the
readings below you' ll find some are on general
principles and practices while others are on
specific cases. We recommend, highly, at least
skimmin them!

Page 23 of 24
 From Aha to KaChing: Innovation and Business Performance

About Llinlithgow Associates

Llinlithgow Assoc. is a management Customer Problem

consultancy focused on evaluating • Value Proposition
businesses to reduce risk, leverage under- • Business Model
developed opportunities in operations and • Strategy
increase overall enterprise performance to
improve investment return.

Our approach is based on BizzXceleration, a Management System

Marketing, Sales &
proprietary framework with 25 years of •Budgeting system Service
development, to review and analyze •Management Controls • Customer value focus
•Operating Plans
Business Models and Strategy, key • Process Discipline
•Resource Development
operating functions and supporting • Business-driven

infrastructure and management systems.

From there we develop comprehensive,
integrated operating plans that tie all the Core Operating
components of the business into a high- Functions
• Functional Efficiency
performance enterprise.
• Inter-function
Integration
Several years ago Michael Lewis published •Value Alignment
an interesting book on how the Oakland A’s
took a systematic look at how the game really works, and what investments in players, strategies and tactics were
most likely to result in the most wins for the lowest cost. Our approaches are similar in taking a systematic look at
the whole business, each of the major components and the best way to tie everything together into a high-
performance system.

We start by looking at the basic core value proposition and it’s translation into the Business Model and Strategy.
Typically we next examine Marketing and Sales operations, where it is possible to reduce operating costs by
30%, shorten the sales cycle by 30% and increase the closure rate by 30%. This is primarily the result of
establishing good processes and discipline.

BizzXceleration is comprehensive but integrated across the total reach and range of business activities and
issues. And emphasizes a pragmatic, workable approach that results in a stepwise path to performance
improvement. We believe that our approach mitigates business risks, improves operational performance and can
lay the groundwork for 10-30% EBITDA improvements in post-deal execution.

If you would be interested in further discussions, more detailed descriptions or the review and testing of specific
opportunities we would enjoy hearing from you. We can be reached at contact@llinlithgow.com .

Page 24 of 24