Building the next-generation enterprise—and maybe even the next-generation nation—will preoccupy most of us in 2008. The demand for innovation is soaring in the business community and is just beginning to gain traction in the political sphere. Most of the leading Presidential candidates have thoughtful positions on innovation (BusinessWeek.com, 11/15/07). And nearly all CEOs and top managers who have learned the language of innovation are now seeking the means to make it happen. It took the Quality Movement a generation to change business culture. The Innovation Movement is still in its infancy, but it’s growing fast.
You can see that in the vast changes taking place within the field. Companies are demanding new tools and methods to execute that change within their existing organizations, as well as for the kind of design thinking that transforms cultures. To take advantage of the opportunities, chief innovation officers in big corporations such as Procter & Gamble (PG) and Harley Davidson (HOG) are leaving to join consultancies or set up shop for themselves. Consolidation is quickening apace as small innovation consultancies try to combine big-picture thought leadership with specific, on-demand Web applications that manage networks, talent, customers, suppliers, and employees around the world. In 2007, consultancy Monitor bought into innovation strategy specialists Doblin, led by Larry Keeley, while another large consultancy, BSG Alliance acquired research firm New Paradigm, led by Wikinomics co-author Don Tapscott.
What’s up for 2008? Keep an eye on the business schools. Companies are demanding that their managers be more creative and less obsessed with cost and efficiency. The last revolution within executive education was the introduction of Management Science in the 1950s. Will we see the spread of IM—Innovation Management—in “exec ed”?
And expect the whole realm of social networking to change in 2008. Just when you “got it” and thought it was all about open, personal, and casual online relationships, social media will morph into another ecosystem—one with lots of gates. Who your friends are is becoming far more important than how many friends you have. We can probably thank our advertising friends for this. The drive to monetize Facebook and MySpace (NWS) by using members’ personal information is alienating many people, driving them to more private networks. Stay tuned, and watch Europe and Brazil for future trends. Social networks are beginning to feel a lot like hot nightclubs—with velvet rope barriers.
As for hot products in 2008, prepare for yet more surprises. The triumph of opening up the cell phone will create an array of new applications we can only dream of right now. GPS may seem old hat by next summer. The mobile Facebook is bound to be fascinating. And the e-book may be just an iteration away from taking off. Want to reduce your personal carbon footprint easily? Read books, magazines, and newspapers on an e-book.
And the Big Idea for 2008? Stop competing against your competitors. Your traditional rivals aren’t your biggest worry. Disruptive innovation is hitting corporations from outside their business. Verizon (VZ) was forced to open its cell-phone service because Apple (AAPL) and Google (GOOG) smacked it hard. Verizon’s new business model will probably generate 10 times the demand for service. You just never know. That’s life, in beta.
December 7th, 2007 | Posted by innovSome months ago, I got a call from Peter Westersträhle, science and technology attaché at the Embassy of Finland in the U.S., explaining that his country wanted to become one of the most competitive service economies. Tekes, the Finnish Funding Agency for Technology & Innovation, and both the thought leader and first mover in the development of European service innovation policy, had established in March, 2006, a €100 million initiative, “Serve,” to study and support service innovation. Tekes is now busy sponsoring research, funding projects, and fostering collaborations among business, government, and academia around the world in order to support innovation in Finnish service industries.
Working closely with Tekes staff, our assignment was to develop a dozen case studies profiling innovative U.S. service companies that yielded insight and examples for how innovation had been applied to bring about new value. Market segments were chosen that mirrored key sectors in the Finnish economy: insurance and financial services; professional services (called “Knowledge Intensive Business Services” in Europe); wholesale and retail trade; and logistics. Businesses under a billion in revenue and with a B to B orientation were of particular interest.
While the individual cases are intriguing, to say the least, the more interesting thing to me was the set of patterns that were revealed when looking at the group as a whole. See what you think as you read the report.
Key findings of the report included the Internet emerging as an important distribution channel in almost every case. The services era has ushered in service availability whenever and wherever you like. Although the majority of these companies were not dot-coms per se, investments in cultivating online business were the norm for this group of innovators.
In a larger context, information technology has become the new factory for service businesses in that automation helps to “productize” (i.e., make more repeatable) innovative concepts. IT also helps scale services. We saw relatively small investments in the development of IT engines beget enormous returns because of the potential to add new customers and transactions globally at very low cost.
One other key finding is a pattern in which the customer replaces the direct competitor as the dominant reference point for strategy and innovation. There are three underlying reasons for this shift.
First, competition is coming from new and unexpected sources, so disruption from someplace—and not necessarily a place you’d expect—is a given.
Second, customers are more sophisticated and demanding than ever before. Expectations are regularly informed by outside benchmarks such as how fast you can order tickets online or how easy your iPod is to use, not necessarily accepted industry standards. (For example, as financial-services firms have introduced Web services, they’ve realized their customers demand a level of service set by Amazon (AMZN) and Google (GOOG)—not by their industry peers.)
Finally, the proliferation of systems allows for information-driven business models that can provide a user with much more control, and control is a big deal these days given our hectic lifestyles. For the businesses we studied, the main source of insight in developing control points was referencing the needs of end users, not the competition’s offer.
Across a diverse set of businesses, a special set of service innovation patterns stood out. Here they are:
Seventy-five percent of the companies studied provide a service that manages some element of complexity in their customer’s operations, allowing them to focus on their core competencies. For example, wholesale e-tailer Sitoa has built a Web 2.0 digital marketplace that within hours can connect thousands of product suppliers with retailers who want to offer their products.
Bank of America’s (BAC) Keep the Change program helps consumers handle the difficult task of saving by providing an automated solution to the complexity (whether cognitive or logistical) that previously had inhibited millions of people from the practice.
Fifty percent of the exemplars offer solutions that directly help their customers enhance their productivity. ServiceBench provides outsourced modules for post-sales service that include field-service management, parts and repair management, and warranty and claims management for companies such as Whirlpool (WHR). NineSigma connects clients to global innovation networks as they look for the means to leverage technology or outside knowledge in new ways.
Seventy-five percent provide tools that increase transparency into their client’s operations, enabling them to empower employees as well as to react to changes faster through greater visibility into their businesses. MyBizHomepage’s Web-based financial management dashboard updates the financial performance of its clients through a link to QuickBooks each time they log in. Their clients have been known to check this practically on the hour. Consulting firm Crowe Chizek has unveiled a suite of analytical applications that allow enterprises to understand performance at individual franchises or facilities across a range of service industries, from health-care providers to automobile dealerships.
Fifty percent of the service exemplars studied developed ways to help remove or minimize uncertainty in their customer’s operations. Total Quality Logistics (TQL) has transcended the historically poor standards of the trucking industry by facilitating truckload freight shipments through hiring and training the best logistics managers in the industry and by building an IT platform that gives its clients 24/7 visibility into their freight shipments. TQL clients have absolute assurance when their goods will arrive, which helps them focus on their core business activities. In this fast-growing industry, TQL has grown at a 50% compound annual rate since its founding 10 years ago and expects to pass the $1 billion revenue mark in five years.
Finally, many of these service innovators are actively managing strategies to enhance stickiness and engagement with their customers. Through effective market segmentation, Ingram Micro (IM), the world’s leading wholesale distributor of information technology products, has organized its value-added resellers into communities that converse over the Web. Through this social networking forum, they advise each other on a host of issues that then can be supported by Ingram Micro’s product line and service offerings within the broader context of a relationship with the company.
It is important to note that stickiness doesn’t necessarily have to confine itself to companies that have a big e-commerce presence. At Mattel’s (MAT) American Girl, the concept of deep customer engagement is embodied in everything the company offers, from services for the dolls (hairstyling, wellness, and accessories) to services for the little girls and moms that buy the dolls (birthday parties, café services, and musical productions). They let you check out but never leave!
The country of Finland should be thanked for its willingness to share this information with the world.
Self-directed IRAs: advantages, challenges, and options
December 1st, 2007 | Posted by taxAmerican taxpayers have several options for saving and investing for retirement. The recent shift from company-sponsored defined-benefit pension plans to 401(k) defined-contribution plans, along with the uncertainties associated with Social Security, has some taxpayers beginning to feel an urgent
need to supplement their retirement savings. Individual retirement accounts (IRAs) can be an excellent addition to any retirement portfolio. IRAs allow individuals to save up to $4,000 in 2007 ($5,000 if age 50 or older) for retirement in a tax-advantaged account.
There are two types of IRAs available to taxpayers, traditional and Roth IRAs. Traditional IRAs, under Sec. 408, allow qualified individuals generally to deduct contributions on the current-year income tax return. In addition, traditional IRAs also allow tax deferral of capital gains on investments and retirement savings that are not taxed until age 70 1/2. Roth IRAs, under Sec. 408A, allow qualified individuals to contribute $4,000 a year into a tax-free account. Taxpayers contributing to a Roth IRA do not receive a tax deduction for the annual contribution; the contribution to the account is made with after-tax dollars. However, assuming that retirement savings will grow, the Roth IRA generally allows taxpayers to receive all of the growth tax free. In other words, the Roth IRA requires individuals to pay taxes on the seed, instead of the harvest. On the other hand, the traditional IRA requires individuals to pay taxes on the harvest and defers the tax liability until withdrawal. Other types of IRAs include the simplified employee pension (SEP), the savings incentive match plan for employees (SIMPLE), and self-directed IRAs.
Background
Since 1974, IRAs have given individuals the flexibility to place funds into a trust or retirement account for the exclusive benefit of their beneficiaries or themselves. Sec. 408, which governs IRAs, specifically identifies who can serve as custodian of an IRA. It also establishes strict guidelines for operation. Under Sec. 408(a)(2), a trustee can be a bank or other person granted permission by the Secretary to serve as custodian to the account.
A self-directed IRA is simply an account in which the custodian agrees to allow the taxpayer to exercise greater control over investment decisions. (The term “self-directed” does not actually appear in the Code.) Self-directed IRAs are often called “real estate IRAs” but can contain any investment allowed under Sec. 408. Thus, self-directed IRAs can be invested in real estate, notes, options on real estate, private placements, investment partnerships, and operating businesses. However, the Code specifically disallows certain investments, such as collectibles (Sec. 408(m)) and insurance contracts (Sec. 408 (a)(3)). Currently, the number of self-directed IRAs is relatively small in comparison with the total IRA world.
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