T-Commerce – Teeing Off

A list of countries with IPTV availability (in...

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Written in 2007, the introduction to a biz plan for a T-commerce solutions provider.

1 Introduction

Buy Interactive has a vision of bringing online retailing into the drawing room of millions of television viewers via its innovative use of technology. The goal is to integrate the converging technologies of media, the internet, the wireless and retailing to facilitate the extension of e-commerce to t-commerce & m-commerce.

1.1 Objective

The objective of this business plan is to outline a strategy for an interactive solutions software company to target the emerging market for interactive television with a specific focus on interactive shopping as the application of technology with the existing Internet infrastructure as the communication backbone. The convergence of media, the Internet and online retailing is the hub of this identified niche in the content management software industry. Further aspects to be explored are an extension of online advertising and promotions to this targeted market segment.

.2 The Organization

The company, Buy Interactive, is a software products company with a focus on developing solutions for interactive/IP television. The crux of the software solutions are the set-top box, the software stack on the box and a broadband internet connection. Current applications of interactive/IP television are mostly sports-casting, picture-in-picture, video -on-demand, email, interactive games, & information portals; these have limited interactivity. Buy Interactive intends to focus on leveraging existing online retailers and their offerings to bring them to your fingertips.

1.3 The Service

The service offered by Buy Interactive is a unique shopping experience for the couch potato; the not-so-internet-savvy user, the one who is more comfortable with traditional media such as the television & video. No more time-wasting spent on the internet searching for deals; the best deals are brought to you to your finger-tips for use via the ‘power-pad’.

The business model also provides for advertising revenue to be collected by the cable & telephone networks based on the pay-per-click, pay-per-lead and pay-per-sale.

1.4 The Market

1.4.1 Geographic Market

The scope of this project proposal is to be limited to the geographic area of Cyprus with potential users CYTA and PrimeTel. The software will be provided as private label allowing the licensors to customize the look and feel of the software and use a consistent interface. Branding can be a combination of the online retailer and/or the operator.

1.4.2 Current Usage

CYTA MiVision market share among residential broadband users was about 10% when it was first introduced in July 2004. PrimeTel and its competing TriplePlay [includes ADSL 2+] service is currently aiming for a market share of 10-15% of IPTV subscribers. CYTA MiVision currently has 23,000 subscribers to IPTV with growth in subscriptions ranging from 500 to 1000 subscribers per month. PrimeTel, on the other hand, have new customers at the rate of 2000 per month. CYTA MiVision plan to introduce 2 new services soon, namely nPVR and Time-Shift TV. CYTA MiVision’s contract with Amino for STB’s specifies that orders (unit contract price) are placed for STBs based on demand, as the need arises. The price for each STB to the customer is 50 CYP , a one-off price. PrimeTel’s suppliers are Kreatel Communications, a recent acquisition by Motorola. STBs are currently being offered free by Prime Tel to new customers, mirroring a trend in most IPTV providers, to subsidize the STB in anticipation of selling value-added services and recovering the initial cost from the service revenues. Both Amino and Kreatel Communications STB devices both run on the LINUX operating system.

1.4.3 Growth Potential

Broadband usage in Cyprus at the end of the first quarter of year 2006 was 12.1% from 4.1% in 2005. 46% of households have internet access from home. Internet, mail order & telephone sales for the first half of 2007 show a jump in spending from £8.83 million for the whole of 2006 to £25.4 million.

This subscriber base has experienced increasing growth over the past 3 years, from 2004 to 2006, and the potential to convert these to IPTV customers increases as the broadband subscriber base increases. The other way to drive growth is to use the IPTV offerings to get television viewers (99% of the Cypriot population own a television) to switch over with a less intimidating offering, especially for non-computer owners (almost 50% of the population). Once a tipping point for this service is reached, growth will be exponential. Signs of this happening in the broadband market are evident. Extrapolating to IPTV and from there to Buy Interactive’s products is how we predict growth for our products.

IPTV in India
IPTV, in India, is currently offered by MTNL in Mumbai and BSNL in Pune, Kolkata and Bangalore.Other companies with plans to rollout IPTV Triple Play offerings in the near future include Reliance InfoComm and Bharti Airtel.
The PSUs

MTNL were the first to launch IPTV in India, namely in Mumbai and New Delhi in October 2006.

Subscribers now number less than 1,000 for MTNL, but the company is hoping for a high conversion rate as broadband connections grow to a target of 500,000 each in Mumbai and Delhi.Currently, MTNL has 225,000 broadband lines out of a total of 4.5 million fixed line subscribers in the two cities. To enable transport of high-density video content, MTNL is using compression technologies that can zip as much as 3 megabits per second.

Currently, a subscriber has to pay a lifetime payment of Rs 3,500 (approximately 87 USD) [Prices have dropped to Rs. 1000 approx. 25 USD for current new subscribers] for a set-top box, and a monthly rental of 120 rupees for 52 channels in Delhi. As volumes grow, it is expected that STBs will be made available free of cost. The service of course is dependent on the customer already being a broadband internet subscriber with MTNL. Bundling of services such as Internet connection and IPTV are not offered as yet.

MTNL has increased the accessibility of IPTV in a 3 km radius from each telephone exchange, from the initial 800 metres each, and plans to start rolling out fibre optic cables that will reach 20 km from the nearest exchange. MTNL has invested $120 per subscriber to enable the IPTV service, and is betting on instant interactivity to view desired programmes and convenience of viewing to be the distinguishing features.

BSNL, the other large public communications company with most of its subscribers in the Tier II cities & towns, envisaged a “quantum jump” in broadband penetration by issuing around five million new connections over the next few months. These would include an estimated three million broadband connections across 1,000 cities and another two million connections in the rural segments. Currently, 1.15 million subscribers used BSNL’s DataOne, a 40 per cent share of the broadband segment of 2.5 million subscribers.[As of April 2007 India had 2.43 million broadband subscribers, by April 2008 it is expected to rise to 4.21 million. India has around 65 million cable and satellite homes. If even 10 per cent take IPTV then 6.5 million IPTV subscriber base is not a small one].This is projected to grow to 20 million by 2010 according to TRAI.

PricewaterhouseCoopers, on the other hand, says that while the number of TV households in India is expected to grow to 130 million by 2012, DTH will account for less than a tenth of this number and IPTV less than a hundredth.

Bharat Sanchar Nigam Ltd (BSNL) is conducting a feasibility study to launch broadband multiplay service, including voice, video and Internet protocol television (IPTV). The service, to be offered in 789 cities across the country, would be available at an eight megabites per second (MBPS) speed connectivity, instead of 2MBPS.

Cable operators such as Hathway are expected to enter this market as well. Current efforts to digitize their network and then move into the IPTV space with Triple Play offerings.

Further competition to Telco IPTV providers are expected from Tata Sky and Dish TV, two DTH players currently consolidating market share.

Reliance Communications & Microsoft have signed a 8 year contract to supply IPTV services. The world’s biggest software maker is expected to earn $500 million, or Rs1,965 crore, based on a revenue-sharing formula in the contract as part of license fees for its software. Reliance Communications will use Microsoft’s MediaRoom IPTV platform, a deployment that Microsoft has valued at about $500 million. The carrier appears poised to invest as much as $1 billion on its IPTV project.

The Indian Context

Over 50% of India’s telephony infrastructure can support IPTV ,which for a developing country is very impressive.

Global IPTV revenue is expected to touch $17 billion by 2010. Smooth billing of services is crucial to ensure consumer satisfaction. The bundling of telephony, internet access and television channels makes it necessary to provide a single billing facility to the users. Software that provides this as well as integration of discount schemes is key to making sure that transition is smooth and hassle-free.

At IBE 2007, held in Mumbai between 25 and 27 October, it was predicted that there will be one million IPTV subscribers in India by 2011.

Mobile Telephony & IPTV

Besides the use of telephone and cable networks, Reliance Communications Ltd. , Bharti Airtel and BSNL are experimenting with WiMax wireless technologies to deliver IPTV services to consumers via their existing wireless networks. Government regulations have been eased to facilitate increased bandwidth; this coupled with better compression techniques, that already deliver content to mobile phones, should enable IPTV services via wireless networks for the Indian consumer. The consumer is thus faced with a multitude of choices from which a bouquet of services may be chosen. Thus, a congruence of choices implies convergent services for the end-user.

The regulatory body TRAI is struggling to come to terms with the different vying technologies that can provide these bouquet of services; a rapid overhaul of the existing laws & regulations is called for.

Revenue Sharing Concerns

The biggest fear of content firms when it comes to archiving of their programmes, is piracy and proper revenue-sharing. It is essential that the operator, whether it is the cable-industry or the telecom operator, shares the correct figures about the number of people who watch it and gives the right share of revenue to them. Else the question remains as to why should the content firm should provide its programming to be played as re-runs.

1.5 The Strategy

Competitive positioning strategy is to position Buy Interactive as being a total customer solutions (TCS) provider to IPTV providers; the initial focus is to be the best available product and move towards offering customized solutions, consultancy, training and maintenance services to our customers. The strategy model is based on the Delta framework with specific reference to using technology to provide a competitive advantage. System Lock In(SLI) would be an ideal situation; however, we envisage regulatory and customer resistance/customer sophistication as hurdles to any move in that direction. Key to capturing value via our revenue model is the achievement of critical mass in our complementors markets; we hope to ride the network effects of high market share achieved by our partners/customers. Our aim is customer’s mind-share.

1.6 The Business

The business is to provide a complete suite of software services packaged to allow the cable & DSL providers, primarily to enable t-commerce and secondarily the ability to create advertising content tailored by demographics, location & program content. The interactive/IPTV providers are the customers for the packaged products with Buy Interactive providing installation, consultation, customization and maintenance services, thus providing a Total Customer Solution.

1.7 The Mission

Our mission is to provide state-of-the-art interactive software solutions for the IPTV platform, to provide our customers a competitive edge by the right use of technology to meet their business needs and serve their customers better.

Interactive solutions at your finger-tips”

1.8 Key Success Factors

  • Total Customer Solution Provider

  • Customer Satisfaction & Long-Term Relationships

  • Strong Management Team with Key Technical Personnel

1.9 Customers/Complementors/Alliances

Our core targeted customers are to be the IPTV providers, who would use our products to track & report advertising views, lead statistics, and conversion to sales of advertised products. We also envisage a market for content creation software that would be used by content programming companies, that can synchronize advertised products with the programming content. Direct selling channels/home shopping networks such as QVC, HSN (QVC & HSN already have interactive TV shopping applications) and Shop@Home TV is another customer avenue to be explored. The business model rests on the ability to form strong strategic alliances with online e-tailers to enable their offerings for IPTV. The ability to get strong branded e-tailers to buy in early is critical to the success of the business. The other option is to build a strong local conglomerate of e-tailers and converge their services and products via our software service. This would however require an additional investment in time, capital and training.

1.10 Service/Product Delivery

Delivery of our products would be done by a team of software professionals, that include system administrator, an account manager and a software developer for trouble-shooting issues. Customization of requirements would have to be signed off by the customer and the account manager, after feasibility studies in consultancy with product managers and software architects is completed. Schedules & time-tables for different mile-stones of product delivery are to be agreed on with the customer. Provisions for staging the software and pilot deployments are other important aspects that will have to be considered. All these costs are to be borne by the customer with clauses inserted enabling the customer to pull out if necessary at any stage. Clauses to compensate for new requirements , either overlooked , inadvertent or caused by new regulations will be part & parcel of the contracts. These agreements would be drafted in consultation with our retained lawyers; special provisions to protect our intellectual property (IP) would also be factored in.

1.11 Product/R&D

1.11.1 Base Products & Features

The E-Tailer Enabler

The Enabler is the core product offered by Buy Interactive. The Enabler brings the online retailer to your television set leveraging the use of web-services, HTTP/HTTPS, SSL and the STB stack of software services to provide a much more user-friendly experience for the television viewer. The Enabler has 2 components, the Controller hosted at the operator’s central site and the on-the-fly Intelligent Renderer of the streamed/pulled deals available currently at the online retailer selected. The currently watched television show’s content descriptor tags are scanned for relevant key-words and matched against a local data-base of products and categories. These are then used to pull deals from the online retailer via their provided Web-service APIs and these can be rendered as the user wishes either in a full-screen window or a smaller picture-in-picture (PIP) window. The initial version would leverage the embedded browser components and create HTML pages on the fly to be viewed in the STB browser for speed-to-market. A further development would be a customized viewer with much more interactivity and better graphics; this could be a driver for customer lock-in by the use of a richer user interface.

The Analyzer/Tracker

The Analyzer/Tracker tracks the user clicks per displayed product/advertisement, the no. of views, and conversion to actual sales. This data is used by the operator to bill the e-tailer using a weighted formula based on click count, time spent on related views and translated sales. A percentage of this revenue would be royalty fees accruing to Buy Interactive.

The Distributor

The Distributor component deals with the distribution of advertising and programming related content to the STBs. Premeditated content such as graphics, video & audio can be distributed to the STBs to be scheduled to play along with scheduled programs, ads & events. The pull process is then limited to the prices and deals being offered for the products. The distributing process is transparent to the television viewer; content can be cached at servers located closer to the area to reduce network latency similar to the process used for Video-On-Demand (VOD). This meta-data is to be rendered by the Intelligent Renderer and synced along with the program & ad content.

The Service Updater

The Service Updater component updates the software stack of services on the STB. The Service Updater component seeks to ensure that the STB is autonomic, I.e. It is self-diagnosing and can fix itself except in the most rare circumstances. The STB can communicate with the Updater service and intimate it as to the current status of the STB, it’s content as well as the playout of content, if necessary. The Service Update STB component can check for updates if available and download them to be applied either immediately or at a programmed time or on shutdown or start-up. Care is taken to ensure minimal disruption of the viewer’s schedule.

The Shopping Cart

The STB services platform will include a shopping cart functionality that is owned by the service operator. This can be configured to override the e- tailer’s shopping cart or used for the operator’s promoted products such as telephone & cable equipment to be purchased.

The Billing System (BS)

The Billing System provides the television viewer statements of their online purchasing activity sent out to them either by mail or e-mail.

It also has B2B functionality to bill the e-tailer for service provided. All this is enabled via a server side billing system that is scalable to meet the growing subscriber base. This would integrate seamlessly with the Subscriber Management System to provide a complete customer management system.

The Subscriber Management System (SMS)

The Subscriber Management System would integrate with the operator’s existing customer database and would add additional tables to provide for additional customer specific data needed for the SMS & BS to function.

SME E-commerce Server

For small merchants and local retailers, the SME E-commerce server provides a service where they can hawk their goods and services. This will be provided to local businesses as a SAAS application that can be accessed via their own customer accounts, so that they can upload details of their goods and service including pricing, special discounts, promotions and sales. The E- commerce server is an Open Source based application server, that will have a stack of web-services provided on top of the existing application to enable these to be pulled to the STB to be rendered. An instance of this Application Server will also serve as a proof-of-concept to be shown to prospective clients.

Data-warehousing (DW)

The total suite of offerings would be incomplete without being able to facilitate data- warehousing to enable managerial decisions for the operator. The initial implementation would use an off-the-shelf implementation with data warehousing specialists and business analysts to work together to identify the various data-marts & dimensions to be stored in the data-warehousing system. This differs from the data-warehousing solutions currently implemented & used by both the e-tailer & the service operator.

1.11.2 Add-Ons & Extended Product Lines

The Content Creator

The Content Creator software allows the user to create tailored content using graphics, audio, video and animation to produce MPEG2 and MPEG4 content.

The Content Editor

The Content Editor allows the user to edit existing content mostly to create or edit additional tags to describe the content and add relevant key words and date information.

E-auction Server

The E-Auction server is an application server that incorporates all the features of an e-commerce server plus the ability to store various bids and dynamic pricing of goods and services. This feature will be an enhancement of the SME e-commerce server and will include features that enable tracking bids , closures. Merchants will also have the facility to upload their product offerings and latest deals.

1.11.3 Technology to be used

LINUX OS for embedded devices/Windows CE

Java2 Micro Edition(J2ME) / .NET platform

Java XLETs/Windows API

Proprietary Extension/Set-top Box APIs

SOAP web-services

RESTful web-services

HTTP/HTTPS/SSL

Embedded Browser

RFID for single-sign on

E-commerce Application Server (Open Source)

WebServices API for E-commerce Application Server

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Innovation & IBM

Innovation occurs at the intersection of invention and insight. It’s about the application of invention –the fusion of new developments and new approaches to solve problems.

–Sam Palmisano, Council on Competitiveness, October 2003

Executive summary

Innovation in IBM and its impact on its business practices is the subject matter of this case study. It attempts to explain why innovation is now an integral part of most firms with an emphasis on the innovation practices now in place in IBM and the trend towards open source development and how it’s changing the face of the software industry. IBM’s attempt to bring researchers in touch with client needs via their On Demand Innovation Services (ODIS) division is also explored.

Profile of firm (s) in terms product/markets, structures, growth drivers

 

IBM is a information technology company that focuses on four broad market segments technology, software, services and hardware. It is among the Fortune 100 companies and its dominance in the IT industry is rivaled perhaps only by Microsoft. Unlike Microsoft, IBM has a rich tradition and attracts the best talent in the industry without parallel. IBM over the past 2 decades has evolved from being mostly a mainframe and mini-frame based company and has moved towards providing services to their clients. Mainframe and minis still form a core part of their business but the services sector has grown exponentially. Lou Gerstner. Jr. is credited with this dramatic turnaround of a slothful giant that is now nimble enough to prance with the hares. The elephant now roller-blades!

A more recent phenomenon in the IT industry is the trend towards use of open source software for commercial applications. The use of open source has driven down costs, led to much quicker implementations and improved productivity. IBM has been at the forefront of this revolution by providing maintenance and support to LINUX deployments and its adaptation of the Eclipse platform as the de facto base for its Integrated Development Environments especially its core server side development product WebSphere Studio Application Developer (WSAD).

IBM Research has always been at the forefront of inventive technologies and has the most no. of patents credited to any company in the US. This is also a major revenue earner for IBM by the licensing of these patents to other firms.

IBM also works closely with its partners and clients to drive innovation. GILFAM (French government) [automated land transaction process] and Boston Coach [Fleet Optimization System] are 2 prime examples of innovation at work with partner interaction. IBM’s On Demand Innovation Services (ODIS) , a collaboration between IBM Research and Business Consulting Services (BCS) helps IBM clients innovate faster, thus providing innovation for money.

Use of innovation models, metrics within IBM divisions

ODIS Innovation Model

ODIS Researchers first study a client’s problem and then work with BCS consultants to devise a tailored solution. First, existing research skills , assets and patents are examined to see whether those can be retrofitted to the client problem, rather than reinvent the wheel. If an answer is found, then the existing process, technology is applied to the client problem and licensed to them. If not, then resources are allocated to develop a new technology/solution and the solution is built from scratch. ODIS thus transforms IBM into an Innovation Network Service Provider. ODIS gets scientists out of the labs to help IBM’s clients solve their toughest problems.

The Open Source Business Model

IBM’s move towards to the Open Source Business Model was a natural culmination of their enterprise move towards Open Innovation. Besides their LINUX service support offered, it also threw open their Eclipse project in November 2001. Eclipse is now a phenomenon, with over 800 tools built on this Integrated Development Environment (IDE) framework. Other open source initiatives include the Apache HTTP Server as an integral part of its Web Application Server (WAS) product line. The Open Source process allows IBM to work with a dedicated community of developers across the word, allow them to concentrate on adding value and providing integration services to firms that intend to incorporate open source products in their IT processes. This has also aided them to lower costs and allow their R&D divisions to concentrate their funds and resources more efficiently in a few concentrated areas. This mirrors the model followed by the ODIS division, an essential part of the Open Innovation process at work.

Of the 4 business models available to firms using Open Source, IBM has used a mix of loss leader initiative (the Eclipse project), cannibalization of an existing product by selling maintenance and support (LINUX initiative) and adding value to the open source products (products like WSAD).

Evaluation of LINUX Support and Maintenance as a Service provided by IBM

The provision of LINUX support and maintenance as a service provided by IBM professionals, was a major breakthrough for the proponents of LINUX as the operating system of choice for server side deployment over the other UNIX variants and Windows NT and Windows Server 2000. Though this would eat into IBM’s own Unix variant AIX’s market share, it made profound commercial sense for IBM to go down this route as server side deployment on LINUX had started acquiring critical mass. This also fit into IBM’s move towards services as a way of adding value to their product offerings and an increasing demand from customers for this service, in addition to the support services provided for their products.

The diagram listed below describes the process that would be followed as part of an idea screening before the decision to provide LINUX support & maintenance as a service offering was launched.

Does it fit the organization?

Yes, IBM is an IT services provider. This is an extension to current service offerings

Does it provide strategic advantage?

Yes, our server side products have LINUX code-bases. Providing LINUX support allows us to capture a major market, with no real competition except from pure LINUX packagers such as RedHat and Mandrake.

Is there a demand for it?

Yes, our current and prospective customers have expressed a desire for this offering.

How might we pursue it?

Build LINUX competence internally and by recruiting LINUX professionals.

Is there a clear definition of success?

Increased sales on the LINUX platform for our software products.

Will management support it?

Yes, since this fits into the move towards services as a major revenue earner.

LINUX Support at IBM

 

Does it fit
the organization?

Yes

Possibly

No

Does it provide
strategic advantage?

Yes

Possibly

No

Is there a
demand for it?

Yes

Possibly

No

How might
we pursue it?

Yes

Possibly

No

Is there a clear
definition of success

Yes

Possibly

No

Will management
support it?

Yes

Possibly

No

 

Evaluation of LINUX Service Offering
EvaluateLINUX

Evaluation of Eclipse

Criteria

Rating

Reasons

Leadership Support

4

Support from leadership to move towards standards and open source

Strategic Organizational Fit

4

Fits with IBM’s move towards more service orientation and Open Innovation.

Strategic Edge

4

IBM can position itself as an Eclipse expert and provide customers with Eclipse expertise. IDE products built within IBM would use the same source code base also increasing productivity. Products contributed to the Eclipse Foundation can be accessed thus allowing access to industry R & D.

Demand

3

Demand for this did not exist. But demand was created. More of an instance of push rather than pull.

Switch Adoption

3

IBM had a very good IDE product series, the Visual Age series, that had won industry awards.

Clear Success Defn ROI

4

 

Increased productivity,less time to add more value to products.

     

InnovationMetrics

Taxonomy of innovation types

At the enterprise level, IBM describes 3 types of innovation:

Business Model

Operational

Products/Services/Markets

Products/Services/Markets are sources of revenue and thus a direct metric measurement is profit.

Operational innovation also can be measured by profit but this attacks the cost side of the profit equation. This allows the firm to capture market share via lower costs.

Business Model innovation changes the game by using creativity to lower costs, target new markets, lower prices or all of the above.

IBM has focused on business model innovation in the recent past by remixing their product portfolio. Movement to the high-value innovator spaces in technology and services has resulted in a more balanced profit sources, one third from services, another from software and the third from systems and technology. IBM’s next move is towards increasing globalization producing innovation collaboration across the globe by setting up research centers in different countries.

Audit of Innovation drivers, barriers

Drivers

Innovation drivers can be classified as follows:

Financial pressures to decrease costs, increase efficiency, do more with less.

Increased competition

Shorter product life cycles

Value migration

Stricter regulations

Industry and community needs for sustainable development

Increased demand for accountability

Community

Demographic, social and market changes

Rising customer expectations

New technology

Changing economy

IBM CEO Sam Palsimano believes that increasing competitiveness and the increasing commoditization of things, makes it a challenge for firms to retain their existing business models. The dynamic changes coupled with changing technology and the increasing globalization of competitors pose a threat to the existing market leaders. At the same time, these changes also throw up opportunities to be exploited.

Barriers

Peter Andrews,Consulting Faculty Member at the IBM Executive Business Institute in Palisades,New York identifies the following five barriers to innovation:

Inadequate funding, risk avoidance, “siloing”, time commitments and incorrect measures.

Inadequate funding

Funding a new innovation could lead to reduced funding for an existing program or product.

The problems encountered include how much can be accomplished w/o money? Is money needed? What are the avenues? When and how much? Can we identify partners? What’s the ownership break-up?

Some solutions include calling in favors owed, use milestones, list out possible money sources, use good enough substitutes , assess the innovation for potential interested partners to be contacted.

Risk avoidance

A clear-eyed view of risks balanced against benefits can create an environment where innovation is nurtured rather than killed. How do we measure risks and benefits? What are the appropriate measures for innovations? What are the risks of not innovating? Can we measure the benefits?

Some solutions are to learn about and promote effective risk assessment methods, identify the right person/organization for risk assumption, find and develop supporters, anticipate objections and clarify, use prototypes, use a portfolio approach, reassure people with reasons, take the safety of sponsors, participants and other stakeholders seriously.

Siloing”

Innovations tend to cross boundaries and create new categories. Hence innovations might get killed by organizations if stakeholders feel threatened. Solutions include taking concerned stakeholders into confidence, emphasizing the benefits, and sometimes avoiding losing stakeholders until the innovation gains enough winning leverage within the company.

Time commitments

Time is scarce. If the value of an innovation can be increased, then time can be freed up to meet its demands. Questions to be asked are is the innovation worth our time? How much time? What time horizons do we have? Are our competitors ahead? Do we have flexibility? Some answers include delegating work or outsourcing, have small success milestones to encourage participants to invest more time.

Incorrect measures

Most innovations cannot be measured by the usual ROI measure. Some innovations can lead to increased sales in a hitherto untapped segment e.g. LINUX support has helped IBM to capture a major chunk of the UNIX server product market. Are there other measures of success? Is this innovation a long-term revenue earner?

The winning innovation formulae

What is IBM’s winning innovation formula?

IBM follows a mix of practices, using both Open Innovation as in the case of Eclipse and LINUX, as well as leveraging its existing patents which is a product of traditional R & D (ODIS). These may be based on standards and/or outside research.

IBM believes that it can achieve more productivity and growth and move up the value chain by collaborating with companies, governments and educational institutes. Diversity is an integral part of IBM culture and thus different views of opportunity and technology are constantly evaluated for value addition to existing businesses.

For example, the breakthrough that IBM got done in the Cell processor, which is based on their Power architecture, would not have happened if IBM hadn’t designed chips for Sony (SNE ), Toshiba (TOSBF ), Microsoft (MSFT ), and Nintendo (NTDOY ). Now Toshiba and Microsoft are competitors of IBM but this collaboration drove a great breakthrough. In the software segment, collaboration with the open source community such as Linux and Eclipse has driven software development to standardization , increasing ease of use.

Clear lessons – implications

IBM is one of the rarities in the business world, that has fallen from the pinnacle of the industry, hit near rock-bottom and then dramatically turned itself around to climb the summit again. The targeting of the internet as a new revenue model, the open source business model, licensing patents to smaller start-ups are some of the innovative business methods used by IBM to achieve this turnaround. Innovation was thus an integral part of the strategy employed by IBM to regain its pole position in the IT industry.

The IBM Research paper states the following about the lessons gleaned about how to retain innovation:

Hire smart people

Set milestones.

Ensure a variety of thinking within a critical mass.

Maintain flexibility.

Create a fluid community.

Embrace risk.

References

1> IBM Research : Innovation @ IBM : Our long-standing commitment. 2004 IBM Corporation.

2> Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround – Louis V. Gerstner, Jr.

Harper Collins Publishers

3> IBM Delivers Innovation – On Demand. ODIS Transforms IBM Inventions Into Client-Valued Innovation Network Services by Navi Radjou with Christine Ferrusi Ross and Ian Schuler published June 22, 2005. Forrester Research Inc.

4> Innovation: The View From The Top – IBM’s honcho on what CEOs can do to lay the groundwork for real breakthroughs – Business Week April 3, 2006

5> Past, Present and Future by Jim Utsler – Linux Executive Report (LER) – August 2006

http://www.ibm.com/linux

6> Conquering Open-Source Fears by Shirley S. Savage – Linux Executive Report (LER) – August 2006

http://www.ibm.com/linux

7> Five barriers to innovation: Key questions and answers – November 2006 Executive Technology Report (ETR)

http://ibm.com/bcs

8> Open Innovation – The New Imperative for Creating and Profiting from Technology by Henry Chesbrough

Harvard Business School Press

9> http://www.eclipse.org

10> http://www.opensource.org/advocacy/case_for_business.php

This is the text of an assignment on Entrepreneurship & Innovation for my MBA at CIIM.

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