Chicago Mayor's Innovation Answers: Better Schools, Fewer Wars

You may think you know Chicago Mayor Richard Daley pretty well after reading his recent profile in the New Yorker by Evan Osnos, a former colleague at the Chicago Tribune. But even after more than 20 years in office—and even longer in the media—Daley can still surprise, as I found out during a private lunch with him. The lunch capped the latest Chicago Innovation Awards and provided the winners, profiled here on businessweek.com last fall, a chance to tell their stories individually to the mayor. I was there as one of the judges.

Most of the talk was on innovation, naturally. But as we sat at a large rectangular table in an anteroom in Daley's City Hall office for more than an hour, Daley leaned back in his chair to launch into monologues against the wars in Iraq and Afghanistan and the failure of public schools—Chicago's included—to adequately train kids today in technology, math, and science. Among the education fixes Daley said he's contemplating: a fifth year of high school and elite math and science academies for Chicago's brainiest students. He also praised for-profit schools.

Daley had surprised me just the day before the March 26 luncheon. I had seen him at an event at the CME Group, where he met the media to talk up the jobs and technology that the futures-trading giant has created. In the middle of a standard pro-business speech, Daley seemed to have a Tea Party moment. He scolded government for raising taxes and boosting its payroll, saying such moves put too much burden on the private sector and probably don't really help much anyway. Later, I asked him whether his remarks were aimed at President Barack Obama. No, he answered. But he added that the federal stimulus measures had succeeded only in creating jobs in Washington and not in the rest of the nation, where people are still hurting.

At the lunch, Daley seemed most interested in a couple of inventions by firefighters. One helps crews battle high-rise fires by enabling them to attach a pipe to the building's exterior to pump in water from the floor below. The second is essentially a giant shop-vac that quickly sucks away debris to help rescue victims of cave-ins. But he was also intrigued by dot-com startups such as Everyblock.com, Groupon, and Visible Vote. What more could the city do, he asked, to promote more innovation and entrepreneurship? The winners suggested city sponsorship of tech and scientific conferences. Daley, in turn, pushed education as a way to supply employers with the talent they need.

Too many students are graduating high school knowing too little about technology, math, and science, Daley said. Even bright kids come out with too few skills because they get held behind by the rest of the class, he said. Chicago, he said, should have career-tracked schools where nerds wouldn't be ostracized. Daley also related anecdotes about students who scam the system by obtaining Pell Grants to go to community college but then take just one class year after year, spending the rest of their stipends on whatever. (For-profit schools aren't scam-free, as this report in Bloomberg BusinessWeek showed.)

Endless wars are undermining America's competitiveness, too, he said. The reason the country doesn't have enough money for better schools or job retaining, he went on, is that it is spending hundreds of billions a year on war. This isn't what the U.S. should stand for, he added. He also wondered where the public outrage is. Back when his father was Chicago's mayor, he recalled, thousands of people would routinely take to the streets to protest the Vietnam War. Nowadays, he said, there are no demonstrations—people shrug off war and say if enlistees want to go off and risk their lives, well, that's their choice.

He also said he could never talk like that in Washington, or he'd be branded as being politically incorrect.

As we stood in line to help ourselves to the food, I asked Daley what he thought of the New Yorker profile. He said he thought it was fair and that Osnos didn't seem to have it out for him like the local media. Way to go, Evan.

BusinessWeek NEXT blog

Everything prior to this post is extracted from BusinessWeek's NEXT blog.

Debate: Who's the Most Innovative Company of 2010?

Posted by: Michael Arndt on March 08, 2010

We’re a month away from publishing our Most Innovative Companies ranking for 2010, dear readers. Let’s see if your opinion matches those in our survey of top-level execs around the globe. Who do you think will top this year’s list? And who do you think actually deserves to be No. 1? Also, name a newcomer that has earned a slot in the Top 25.

To refresh your memory, here’s 2009’s list. I’ve put an asterisk after companies that were honored in our first ranking, in 2005. The 2010 ranking comes out on April 8.

1. Apple*
2. Google*
3. Toyota Motor*
4. Microsoft*
5. Nintendo
6. IBM*
7. Hewlett-Packard
8. Research in Motion*
9. Nokia*
10. Wal-Mart Stores*
11. Amazon.com*
12. Procter & Gamble*
13. Tata
14. Sony*
15. Reliance Industries
16. Samsung Electronics*
17. General Electric*
18. Volkswagen
19. McDonald’s
20. BMW*
21. Walt Disney
22. Honda Motors
23. AT&T
24. Coca-Cola
25. Vodafone

U.S. Loses Innovation Crown to ... Iceland

Posted by: Michael Arndt on March 03, 2010

Once upon a time—actually it was just last year—the U.S. was the world innovation champion, according to an annual report by INSEAD and the Confederation of Indian Industry. In this year’s study, the nation slumps to 11th place. Perhaps even more surprising is the new No. 1: Iceland.

Soumitra Dutta, an INSEAD professor of business and technology, who oversaw the survey, theorizes that the rankings show that, as in so much else, size matters. But in this case it’s the smaller the better.

He tells me that having easy access to a big marketplace still makes it easier for innovators to profit from their inventions. Would the iPod or the iPhone have been such big hits if Apple had been based in, say, Iceland? But the Internet is turning the entire world into one big market, to which everyone everywhere has access, he says. Also, it appears that smaller, homogeneous countries can unite to support policies, institutions, and infrastructure that promote innovation—in the developed world, at least.

Size certainly makes a difference in the 2010 Global Innovation Index report. The most-populous land in the Top 10 is the Netherlands, with 16.4 million people. It finishes in eighth place. Several of the biggest nations in the developed world cluster just below the U.S. Japan is 13, with Britain at 14, and Germany at 16. Of the so-called BRIC giants in emerging markets, China comes out best, at 43. Trailing are India (56), Russia (64), and Brazil (68).

This year’s report, financed by Canon India and released on March 3, evaluates 132 countries. Researchers used data from a number of sources, including the World Economic Forum, the World Bank, and the UN, to gauge innovation inputs—things such as education and business climate—as well as outputs to quantify scientific and creative advances.

The U.S. drops out of the Top 10 because it isn’t sufficiently providing many of the inputs or what the study calls “pillars of innovation.” It ranks 22 in political environment and 21 in regulatory environment. It ranks 22 in K-12 education, 22 in technology infrastructure, and 24 in exports and employment. “The U.S. is unable to create a coherent public agenda,” Dutta tells me on the phone from India.

So where does the U.S. score best? In market and business sophistication, which includes access to capital and openness to foreign competition and where it rises to second and third.

Iceland, by comparison, falls below the U.S. in market and business sophistication—no surprise, says the report, given the complete collapse of Iceland’s banking industry. But it outshines the U.S. in education and infrastructure. Iceland comes in fourth overall, for instance, in per capita mobile phone subscribers. Its general infrastructure is the world’s best.

Here’s the Top 10, with 2009’s rankings in parentheses:

1. Iceland (20)
2. Sweden (3)
3. Hong Kong (12)
4. Switzerland (7)
5. Denmark (8)
6. Finland (13)
7. Singapore (5)
8. Netherlands (10)
9. New Zealand (27)
10. Norway (14)

Advice—and a Pop Quiz—from Chef Charlie Trotter

Posted by: Michael Arndt on February 01, 2010

If celebrity chef Charlie Trotter loves anything as much as fine dining, it’s parlor games. I got to crash a class trip to his flagship restaurant in Chicago by a group of some 100 MBA students at Northwestern University’s Kellogg School of Management, plus their marketing instructor, Andrew Razeghi. For $100 a pop, they took over the entire restaurant for a four-course dinner (with wine pairings) and inspiration and advice from Chef Trotter, as his staff calls him.

As he went from room to room to dispense his philosophy and answer questions, he teased and taunted the students with quotes, offering a free dinner for two to anyone who could name the source. No one in my room won.

Now you can play along in the office or at home. I’m listing the quotes here—plus one ringer—with the answers at the bottom. In between, I’ll pass along a few of Trotter’s insights. (Sorry, no free dinner prizes.)

1.”Goodnight, ding, ding, ding, ding.”

2. “Do you wish to be great? Then begin by being.”

3. “Make voyages. Attempt them. There’s nothing else.”

4. “Say, was I in here last night and did I spend a $20 bill?”

5. “When the going gets weird, the weird turn pro.”

6. “I’m all about making money. It’s the greatest thing, because it means you get money to spend.”

Here’s Trotter’s quick course on entrepreneurship: Trotter opened his first restaurant 23 years ago. But he claimed he’s never worked a day in his life. Instead, he’s been doing only what he wants—and for himself. “Never work for anybody,” he told his guests. “Only work for you.” He also told them it’s OK, and even smart, to appropriate ideas from whomever you want. But you then must make them your own.

He also urged the MBA students to take a flier. “You’ve got to go do stuff. Be bold. Be ballsy. Too many people are chicken shit. Go do something for five years. You’re young. You can always play it safe later.” Their role model, he said, should be the title character in Werner Herzog’s movie Fitzcarraldo, who madly attempts to haul a riverboat over a mountain in Peru to exploit an inaccessible rubber grove. “It’s a metaphor for what all of you want to do.”

And the answers are:

1. Monty Python

2. St. Augustine

3. Tennessee Williams

4. W.C. Fields

5. Hunter S. Thompson

6. Charlie Trotter

Calatrava Dances onto a New Stage

Posted by: Michael Arndt on February 02, 2010

Last May, Santiago Calatrava unveiled his revised plans for a train station at the site of the World Trade Center in New York. It won’t be completed until 2012, if then. The $3.2 billion project is, nonetheless, still moving ahead, unlike his residential tower that was to be New York’s third-tallest building until it was canceled in 2008. One Calatrava project will be finished before then, however, and it’s for sure: He is designing five sets for the New York City Ballet’sspring season.

He will unveil his stage designs on April 29. The first will be for a new ballet choreographed by Benjamin Millepied (yes, that’s his real name) at the Lincoln Center of the Performing Arts on May 22.

Calatrava sees the work as an honor. He is only the second celebrity architect commissioned by the NYC Ballet to create stage sets. The first was Philip Johnson in 1981. It may also be a sign of the times for him and other “starchitects” who find they have a lot more idle hours these days.

Calatrava is far from jobless, of course. In addition to his transportation hub for a new World Trade Center, he was awarded a project last June to draw up a master plan for a new campus of the University of South Florida Polytechnic as well as a $45 million education building to anchor the site. He’s also working, in fits and starts, on the first of three bridges to span the Trinity River in Dallas.

But his setbacks have been as big as his brand. They include the now-canceled Chicago Spire, which at 2,000 feet would have been the tallest building in the Western Hemisphere and today is nothing more than a hole in the ground.

Calatrava doesn’t want to talk about his business, his spokeswomen tell me. Instead, he prefers to talk about the big picture, about how many great buildings were constructed in hard times. He says we could be in a similar spot today, if people are courageous. Meantime, if you want to check out his latest designs in the U.S., your best option is to go to the NYC Ballet.

On Boeing, Innovation, Competition, and Job Cuts

Posted by: Michael Arndt on February 19, 2010

What’s that old saying, actions speak louder than words? Boeing Chairman and CEO James McNerney stepped onto the soapbox on Feb. 19 to decry the quality of U.S. education, warning that the nation is producing too few STEM graduates—science, technology, engineering, and math—to compete against China, India, and “places in the Middle East.” Borrowing a term, he added in a speech in Chicago to alumni of Northwestern University’s Kellogg School of Management that the U.S. faces an “innovation deficit.”

After McNerney finished his remarks, in which he also challenged the Obama Administration to grant investment tax breaks and push harder for more free trade pacts, I got an email news alert that Boeing had sent layoff notices to another 1,000 employees. And guess what sorts of workers the company is firing? Four out of five are STEM workers in the aircraft maker’s engineering, operations, and technology unit. They’re the latest in a series of layoffs that will exceed 10,000, according to the company.

A Boeing spokesman confirmed the news report. He also told me that me that the new cuts come primarily in IT support. But he said that while these workers are no longer needed, Boeing is continuing to hire STEM-skilled applicants in R&D, and in the U.S.

In his speech, McNerney said: “We face a global skill shortage. The problem is growing acute in the U.S. We face a skill shortage, not a labor shortage.” There may be 1,000 Boeing employees who could come up with a way to solve that problem.

Is Drug R&D in Jeopardy?

Posted by: Michael Arndt on January 06, 2010

The U.S. drug industry, historically one of the most lavish spenders on research and development, ended 2009 with plans to eliminate a record 69,100 jobs. The toll is up 60% from 43,000 in 2008 and more than quadruple the 15,600 in 2004, according to outplacement outfit and layoff tracker Challenger, Gray & Christmas.

Understandably, plenty of scientists are going through the five stages of loss (or soon will be). But the cuts could help one group —outside labs.

Following its $68 billion acquisition of Wyeth, for example, Pfizer is closing 6 of the 20 R&D centers the two companies operated. Pfizer won’t disclose how many research employees will be axed, but analysts say the layoffs could essentially wipe out the bulk of Wyeth’s 6,000-person scientific staff, leaving Pfizer with the 10,000-member lab crew it had before the takeover.

Among other U.S. drugmakers dropping thousands from their payrolls: Johnson & Johnson, Merck, Eli Lilly.

The retrenchment isn’t limited to American companies. GlaxoSmithKline and Astra Zeneca, both headquarterd in London, reduced research staffs in 2009, as did Paris-based Sanofi-aventis.

The layoffs might not slow drug introductions, however, says Kenneth Kaitin, director of Tufts University’s Center for the Study of Drug Development. Increasingly, pharmaceutical companies are outsourcing R&D to universities and bioscience startups, which may have more expertise and work for less money. The recent job cuts will likely hasten more linkups to keep pipelines from running dry, he tells me.

And the World's 2009 Patent Winners Are...

Posted by: Michael Arndt on January 10, 2010

Who are the patent champs of 2009? Samsung and Toyota, of course. But would you have guessed Mondobiotech, a Swiss company that specializes in fermentation?

Thomson Reuters just forwarded to me data on patents awarded by 41 government authorities around the world in 2009, broken down into 12 key industries. The financial info company also listed top recipients in a number of industry subsectors, such as smart media under the overall computer heading.

I know, patent volume doesn’t equal innovation. But all these Excel spreadsheets do suggest where inventiveness is flourishing. By industry, creativity abounds most in computers and peripherals. This sector tallied 226,293 patents last year, or 29% of the total of all 12 groupings. Second is semiconductors with 95,106 patents, followed by telecommunications with 90,867, and automotive with 89,106, or roughly 12% each.

The subsector figures may be less significant, since they represent just a slice of the pie and sometimes a pretty skimpy one at that. But the lists are more fun, because here’s where Thomson Reuters names names.

In smart media, Samsung is tops. It’s also No. 1 in space vehicles and satellite technologies within aerospace, discrete devices within semiconductors, and mobile telephony within telecommunications. Toyota leads in both petroleum fuels and chemical engineering within petrochemicals, and alternative-powered vehicles within automotive.

My personal fave is under the industrial heading called food, tobacco, and fermentation, which I automatically assumed must mean beer and booze. Altogether, this industry received 35,375 in 2009, which puts it ahead of domestic appliances, aerospace, agribusiness, and cosmetics. And four of every five patents in this industry are in fermentation—bottoms up! Turns out it’s not really that kind of fermentation. It’s the kind used to cook up biomedicines, which explains why Mondobiotech of Statts, Switzerland wins.

To close, here’s a Top 10 list to ponder. It’s organics, which account for nearly two-thirds of new patents worldwide in the pharmaceutical industry.

1. National Institute of Biological Science, Beijing
2. Mondobiotech
3. Roche
4. University of California
5. Zhejiang University, China
6. National Institute of Advanced Industrial Science & Technology, Japan
7. Suzhou ANJ Biotech
8. Novartis
9. Abbott Laboratories
10. Kao

Monsanto v. Food, Inc. over How to Feed the World

Posted by: Michael Arndt on January 11, 2010

Anyone who’s seen the documentary Food Inc. knows that Monsanto comes across as a thug. Its bioengineered soybeans, designed to be unaffected by Monsanto weedkiller Roundup, command 93% of the U.S. crop, yet there’s Monsanto in the 2008 movie, heartlessly hauling farmers into court to jack up its market share even further. Monsanto execs declined to comment then. In retrospect, CEO Hugh Grant now says he should have. He might have blunted the film’s impact if he had.

Grant has a different take on Monsanto’s role in agriculture, of course. From his point of view, the company is working on the side of angels, helping to create commodity crops to feed today’s population and the 2 billion more people who might occupy the planet by 2030. He is proud that Monsanto scientists were among the first to have a patented genetically modified plant on the market—Roundup Ready soybeans were introduced in 1996—and he is excited about new efforts to bioengineer wheat and vegetables, too, as well as the next generation of super beans and corn.

I got a chance to hear Grant’s perspective when he swung through Bloomberg’s office in Chicago the other day. (My colleagues at Bloomberg News posted this story on Monsanto’s patent strategy, and its legal fight with sometime partner/sometime rival DuPont.) Grant, 51, a big man with a Scottish accent and a shaved head, was joined by Robert Fraley, Monsanto’s chief technology officer, 56, a former Illinois farm boy who coincidentally wears the same haircut.

Monsanto’s goal within the next 20 years is to create plants that will produce twice today’s harvest. Fraley notes that when he went off to college in 1970, his family farm produced 75 bushels of corn from each acre. Today that average in the U.S. has more than doubled to 160 bushels an acre, and he predicts Monsanto scientists will come up with plants that will yield 300 bushels an acre. Moreover, farmers would use a third less nitrogen fertilizer than they add today.

“This isn’t a Jetson’s scenario,” Grant says.

Monsanto’s scientists employ two methods to devise more productive plants. One is traditional cross-breeding, though Monsanto has computerized much of the process so researchers don’t have to wait for crops to mature to know which combination will boost photosynthesis, say, or make a plant resistant to drought. A quick analysis of each plant’s DNA can tell them instead. The other method is bioengineering, or inserting new genes into a plant. They employ each technique roughly half the time.

One such genetic modification that excites Grant is a soybean that can produce Omega 3 fatty acids which are believed to reduce the risk of heart disease and have a number of other health benefits. For now, Omega 3 is found only in oily fish. This new and improved soybean also would be cleansed of trans fats and other saturated fats and become essentially as healthful as olive oil. Monsanto plans to have this patent-protected seed on the market in two years.

Further out: drought-resistant wheat and—cue the applause—winter tomatoes that taste like summer tomatoes.

Most of this research assumes, of course, that consumers and governments will OK more genetically modified organisms. Grant thinks that they will. Food scarcity has re-emerged as an issue, particularly in Asia and Africa. Brazil, Argentina, Mexico, India, and China have all opened the door to bioengineered crops or research in the 18 months, he notes. Even Europe might be becoming more accommodating, he adds. “Biotech isn’t a panacea,” he says. “But biotech has a role to play. We need more yields.”

This isn’t the story that appears in Food Inc., which is why Grant says he erred by not cooperating with the movie’s makers.

Innovators of the Decade

Posted by: Michael Arndt on January 14, 2010

Who are the most innovative companies of the 2000s? Scott Anthony, managing director ofInnosight Ventures, posed that question on his Harvard Business Review blog. (Actually, he asked for “the disruptors of the decade.”) He published his results today here, after receiving more than 3,000 nominations. Scott separated the top vote-getters into three categories—established high-tech companies, established non-tech companies, and emerging companies circa 2000.

The winners, I have to point out, are all in the Top 10 of Bloomberg BusinessWeek’s Most Innovative Companies of 2009, while many of the runners-up make our Top 25. Here are the disruptors of the decade:

High-tech:
Winner: Apple
Runner-up: Cisco Systems
Other finalists: Hewlett Packard, IBM, Microsoft, and Dell

Established non high-technology companies
Winner: Wal-Mart Stores
Runner-up: Verizon
Other finalists: Dow Corning, General Electric, Goldman Sachs, Ford Motor

Emerging companies
Winner: Google
Runner up: Amazon
Other finalists: eBay, Research in Motion, Facebook, Netflix

Anyone want to call for a recount?

It's Back: Innovation Spending Is Rising

Posted by: Michael Arndt on January 28, 2010

As founder and managing director of innovation consultancy Strategos, Peter Skarzynski meets with a lot of businesses. A year ago, when he made client calls, corporations were mostly talking about cost-cutting. Today, he says, they’re more interested in growth again, and that means an increase in spending.

I caught up with Skarzynski at his office in Chicago. Also there: Doug Schaedler, chief executive of UTEK, a patent-licensing outfit in Tampa that acquired Strategos in 2008. (For a peek at one of UTEK’s own innovative investments, check out PharmaLicensing.com.)

Skarzynski says the shift back to growth mode is occurring almost throughout the economy. There is one exception: banking. He says the turn has been sharpest in commodity industries, such as packaging and chemicals. As the Great Recession deepened, these low-margin sectors were all about layoffs. Now they’re concluding that they’ve cut about as much as they can, and if they want to boost profits, it’ll have to come from boosting sales. That means they’ll have to have new stuff to sell, which in turn means bigger investments in R&D.

He doesn’t mean that layoffs are a thing of the past. Just this week, for instance, Wal-Mart said its Sam’s Club was cutting 11,000 employees, as it outsourced in-store product demonstrations to others. But Skarzynski argues that the reasons behind most job cuts will be different. They’ll stem from changes in business models or from mergers rather than from simply needing to save money to survive.

Of course, Skarzynski is just one person drawing conclusions from what he sees in his own sphere. Do you see something different?

Open Innovation's Secret: It Takes a Crisis

Posted by: Michael Arndt on December 03, 2009

As I was chairing the first day of the Open Innovation Summit today, I was struck by something that many speakers acknowledged: Their companies converted to open innovation—relying on outsiders for their next products or services—only after falling into a crisis. Moreover, the panic struck most around the time of the previous recession in 2001, which suggests that we should start seeing many more open-innovation practitioners soon.

Among those that found religion a decade ago are Johnson & Johnson, Procter & Gamble, and Whirlpool. Others which came to open innovation more recently after moments of doubt are Rockwell Collins and the consumer-products unit of GlaxoSmithkline. As Cheryl Perkins, former chief innovation officer at Kimberly-Clark and now president of her own consultancy, Innovationedge, told us in her presentation: “Often open innovation starts with a burning platform.”

I’ll get into a few observations and quips from presenters at the summit in a bit, after I return to this theme of crisis-triggered conversions. But first here’s a quick description of this gathering: The two-day conference in Orlando is organized by World Research Group and consists of speeches (and requisite PowerPoint slides) from dozens of big name companies and innovation boutiques. Here’s what bloggers tweeted from the talks. Now back to the main story.

P&G turned to open innovation directly because of a crisis in 2000, said Pramod Reddy, associate director of global business development. The consumer-products giant missed its financial forecasts for two quarters in a row, something unheard of at the steady-Eddy stalwart. The shortfalls were a symptom of something larger, of course. P&G was no longer able to generate enough blockbuster products on its own. Today, P&G is widely cited as the role model for open innovation.

Whirlpool came around that same year after top management realized that big-ticket appliances had become a commodity. As a result, prices and margins were in a permanent decline, steepened by the recession. Unlike P&G, it didn't respond initially by opening its portal to product suggestions from outsiders. But it did enlist proposals from all employees. Further, it trained some 3,000 in the innovation process and began collaborating with suppliers. Now, in Phase II, Whirlpool is inviting consumers to help, said Moises Norena, global innovation director.

J&J had been into partnerships since at least 1978, when it founded COSAT, or its corporate office of science & technology. But its main mission, said Robert Zivin, the office's senior director, had been to sprinkle money to research scientists in academia. It was only around 2000 that J&J actually began to "harvest innovation" from these outsiders, as Zivin put it.

The payoff from open innovation can be huge. GSK's consumer-products unit was getting about 20% of revenue from goods invented with the aid of external partners three years ago. That's when the bottom fell out for one of its biggest U.S. brands, Aquafresh toothpaste, said Helene Rutledge, the unit's director of open innovation. "A bad economy is good for innovation," she said. Hard times force companies to cut back—GSK had ordered layoffs at the struggling unit—and that in turn can push them to link up with partners to share the burden.

GSK's goal was to boost its share of externally developed products to 33% in three years. Instead, it hit 50% even sooner than that. Among the open-innovation products is a new form of Aquafresh that turns to foam in your mouth. Rutledge said the idea came from someone in the oral-care business who had background in gel foams like Gillette's Edge, but it never would have hit the market if not for technology that came from four outside partners.

Here are some smatterings from the rest of the Open Innovation Summit:

* Phil McKinney, vice-president and chief technology officer for Hewlett-Packard's personal systems group, said: "Knowledge is becoming a commodity." Further, measuring innovation by comparing R&D spending to total revenue is BS. A better gauge is gross margin.

* R. Lemuel Lasher, president of global business solutions at Computer Sciences Corp., said: "Good management is what kills innovation." Lasher also scolded the tech world for calling customers "users." "They are not the same people that shoot heroin into their arms," he said.

* Russ Conser, manager of Shell's Gamechanger unit: Stupid ideas are often the real winners.

* P&G's Reddy said the company just launched Chinese and Japanese versions of its open-innovation portal, and will translate it into Spanish and Portuguese within the next six months to better reach would-be helpers in Latin America.

* And finally, this from Zivin of J&J: "Early-on innovation is parasitic." Most ideas in business end up as failures, which means they only suck away resources and could kill the host if management isn't careful.

Cisco's Failures in Corporate Alliances

Posted by: Michael Arndt on December 04, 2009

One of the truisms in innovation is that it’s OK to fail—most ideas never become a real-life product or service. Yet few executives are willing to fess up to their mess-ups. Cisco Systems’ Greg Fox is one of the few. Today, at the final day of the Open Innovation Summit, Fox, who is marketing director of strategic alliances, labeled a couple of Cisco’s partnerships with big-deal companies failures. And he told me later that a couple more seem likely to fall apart.

The summit, which I chaired in Orlando, had success stories in open innovation, too, from Clorox and Xerox. The audience also heard more how-to tips from executives and consultants. (You can get a sampling from this Twitter stream.) I’ll get back to them, after I pass along Fox’s soul-bearing.

Cisco’s two failed alliances were with Motorola and Ericsson. Fox said both imploded for the same reason: The partners had turned into competitors because of acquisitions. “The disadvantages outweighed the advantages,” he told me. Two others are heading that way, with Dell and Hewlett-Packard. The reason is the same, he said: Acquisitions, this time in servers, are turning allies into adversaries.

Sometimes the computer-network giant can continue to work with rivals, however. Fox noted that Cisco and Microsoft overlap in providing data centers. But they’ve been able to partition off that conflict to maintain their alliance.

Now for the success stories.

At Clorox, partnerships have become a necessity, said Ed Rinker, who manages the consumer-products company’s technology brokerage group. Clorox is simply too small in revenue and intellectual property to compete without outside help. So Rinker’s group surfs for technology that could extend product lines or, better yet, create products in new markets.

Since this outreach began 10 years ago, Clorox has introduced a breakout product every year. Its latest is the Green Works line of natural cleaners, which hit the market in 2008. Clorox licensed the Family Pure brand from a Japanese company and tapped European partners to help come up with cleaners that are made from plant-based ingredients and work as well as harsh chemicals like bleach. (Clorox changed the name to Green Works and co-branded it Clorox after tests with consumers.)

The eco-friendly line, which has been endorsed by the Sierra Club, threatened some Clorox executives, Rinker admitted. “This is a case where the antibodies of a company heavy in disinfectants could kill a great idea,” he said. But the new products seem more complementary that cannibalizing.

From 2004 through 2008, Clorox’s sales have grown by 4% to 9% a year. Rinker said a third to half of that rise is from innovation. Moreover, 80% of new products involved at least one partner.

Executives at Xerox also believe that it must work with external companies to get ahead these days, especially since revenue has plunged during the recession. For instance, the company is now asking outsiders to fund product research without subsidies from Xerox, said Stephen Hoover, VP of global software solutions. In exchange, Xerox promises a cut of future sales.

Hoover acknowledged that Xerox is giving up profits in the deals. But since it no longer has enough cash to support research on its own, it’s the best (and maybe only) way to get new products.

The company has partnerships with the likes of Procter & Gamble on printing consumer-products packaging. It also has turned increasingly to suppliers and customers for ideas and technology,

For example, a customer figured out that by tinkering with his Xerox machine, he could print on magnets. The company now sells magnetized paper that can be stuck on refrigerators to display personalized messages. Similarly, Hoover said, Xerox has signed up 200 partners to develop apps for its copiers and scanners, taking a page from Apple and its apps for iPhones.

These apps are also creating a problem, he said. (What silver cloud doesn’t have a gray lining?) Competitors are quickly copying the open-source apps and using them for their machines. That just means Xerox has to innovate faster, Hoover said, or be smart about what it patents.

Here are a few last tidbits from the Open Innovation Summit:

* Innovation consultant and author Robert Brands: The return on business model innovation is much bigger than product innovation. He also singled out Herb Kohler, chairman and CEO of Kohler, as a role model in inspiring innovation.

* Software inventor and innovator James Todhunter: “An idea is not innovation.” Innovation happens only when someone delivers a new product to the market.

* Weyerhaeuser’s VP of open innovation, John Tau: No company has the brainpower or budget to go it alone. “We need open innovation.”

Is Open Innovation Over?

Posted by: Michael Arndt on December 09, 2009

Just as many of the world’s biggest companies are embracing open innovation, along comesJames Todhunter, chief technology officer of software provider Invention Machine, to say it’s becoming yesterday’s idea. Chatting with me between presentations at the Open Innovation Summit on Dec. 4, Todhunter says, “The pendulum is starting to swing back.”

Granted, we all live in a world where information flows almost as easily as air. And granted, no company really has the brainpower and budget to innovate entirely on its own. But Todhunter argues that companies risk hollowing themselves out if they rely too much on ideas and expertise from outsiders. Taken to the extreme, they would end up with no intellectual property of their own, which in turn would leave them with nothing to differentiate themselves from competitors.

Another thing that many people have wrong, Todhunter tells me, is that China is a fast-rising innovation center. China isn’t today and never will be, he says, until its government relaxes control over the corporate sector to really let a thousand flowers bloom.

Todhunter, a software veteran and inventor who joined Invention Machine in 2002, offers this additional prediction: Hot fields for innovation in the near term will be in energy, water, food production.

Is Todhunter on the money?

Cisco's Patent Strategy: It's More Than Numbers

Posted by: Michael Arndt on December 21, 2009

So innovation—at least as measured by patents—seems to fading in the U.S. As I wrote herein the current issue of Bloomberg BusinessWeek, patent applications fell in the year ended Sept. 30, for only the second time in the last 25 years. For the first time, moreover, foreigners obtained more patents than U.S. residents.

There’s plenty of reason for Americans to fret, as Mark Chandler, general counsel for Cisco Systems, tells me. The U.S. is turning out way to few scientists and engineers, he says. And it forces foreign students to go back home once they graduate, denying the U.S. their productivity years. “Unless we invest in training science and engineering graduates and encouraging people around the world to stay, we will continue to lose ground innovation competitiveness,” he warns.

But the drop in patent activity may also signal that companies are getting smarter about what they do with their intellectual property.

Cisco changed its patent strategy three years ago, Chandler says. Cisco never filed patent applications willy-nilly, he stresses. But like most high-tech companies, Cisco used to pursue quantity, in what he says was an patent arms race. Everyone wanted as many patents as possible to stake claims and defend their IP. The thinking was that the patents might hinder competitors or at least require them to pay royalties to license patented tech. Cisco has more than 5,000 patents and another 10,000-plus pending.

“The arms race approach doesn’t pay off,” he says. “It doesn’t do you a lot of good to have a lot of patents.”

Why? The patent landscape has changed dramatically. Patents often land companies in court as they fight over who invented the idea first. Lawsuits still might involve competitors, but increasingly Cisco finds it is battling what Chandler calls “non-practicing entities.” These are companies that exist only to acquire patents and then seek to extract money from big companies for infringing on them. The more patents you hold, the more likely one of these companies will sue you.

A few years ago, Cisco regularly applied for 1,000 patents a year. Now it files for no more than 700, choosing only breakthroughs in market adjacencies or the most critical inventions. To help him choose, Chandler now employs a half-dozen highly skilled, highly trained “innovation managers” who work directly with engineering teams. These managers, btw, are also all lawyers.

Yes, that means fewer patents—Cisco ranked 24th in 2008 with 704 vs. 4,186 for first-place IBM—but it doesn’t necessarily mean that it has stopped innovating.

Ford Lags in Alt-Energy Patents

Posted by: Michael Arndt on November 04, 2009

Ford Motor may have cheered investors with back-to-back reports this week that it netted almost $1 billion in the third quarter and increased its market share and year-over-year sales in October. (See this report from my BW colleague David Welch.) But the No. 3 car seller in the U.S. is laps behind in the alternative energy race, says a new study from Thomson Reuters.

The financial info company tallied patents and patent applications in alternative energy, an area it considers to be a proxy for automotive innovation, from 2008 through 2009’s first quarter. Ford finished 12th, with 137 patent grants and filings. No. 1 Toyota Motor had 2,899—or 21 times more than Ford. Even General Motors bested Ford, coming in fourth, with 451 patent documents. (GM also outsells Ford, as does Toyota.)

Thomson Reuters also examined patent data in two other areas on the forefront of innovation—vehicle security and navigation—in 2003 and again in 2008 and the first quarter of this year. Ford didn’t make the top 20 in any of these rankings.

Not to dump too much on Ford, I should note that it is moving up in alt-energy patents. In 2003, the carmaker wasn’t even in the top 20, with 43 grants and applications. In 2008, it was 13th, with 116. I have asked Ford for a response, but haven’t heard back.

For the record, here’s the top 12 list in alternative-powered vehicle patents in the most recent five-quarter period:

1. Toyota 2,899
2. Nissan 601
3. Hyundai 549
4. GM 451
5. Honda 449
6. Matsushita 383
7. Nippondenso 334
8. Sanyo 219
9. Sumitomo 198
10. Hitachi 196
11. Bosch 144
12. Ford 137

Mayo Clinic to Telemonitor Heart Patients

Posted by: Michael Arndt on November 05, 2009

Mayo Clinic is moving toward becoming more of a virtual hospital. The not-for-profit complex just announced a telemedicine collaboration this morning with a Swiss semiconductor company, STMicroelectronics, to monitor the condition of cardiac patients from outside their hospital rooms. Patients would wear a lightweight device that would pick up such information as heart and breathing rates and beam the data to medical personnel.

A trial involving 10 patients begins today (Nov. 5). These patients will be monitored while in the clinic in Rochester, Minn., to test the equipment and to train hospital personnel. Mayo plans to move on to a trial with discharged patients in early 2010, says Dr. Virend Somers, a consulting cardiologist and professor of medicine.

Talking with me before the official announcement, Somers acknowledged that telemedicine at Mayo is hardly brand new; the hospital has been taking readings from heart patients through at-home devices for years. But he said the STMicroelectronics technology should be more adaptable. For instance, it might be programmed to send real-time data 24/7, or for patients in less critical condition, it could record data and upload it once a day or week.

“The question is how can we make a comprehensive, unobtrusive, user-friendly, and economic remote monitoring system all together,” he said.

The device and monitoring system costs money, of course. The clinical trials are also aimed at finding out whether they’re worth it. Somers says he’s fairly certain it will lower both technology and personnel costs. Time will tell, as they say.

Innovation Is Back, Says Accenture—Or Is it?

Posted by: Michael Arndt on November 11, 2009

Nearly two years after the U.S. tumbled into a recession, business is starting to think about ways to grow again. And for many, this means spending more money on innovation, says anew study from Accenture. In a survey of 630 execs in the U.S. and the U.K., 48% said their companies had upped their innovation budgets from six months ago. A third said innovation outlays were flat.

There’s a gray lining in these numbers: One in every five companies is still cutting spending on the development of new products or services.

And there are other findings that suggest that companies really haven’t kicked their recession habits. While new products or services have the biggest potential to generate sales and profit, 74% of the respondents told Accenture that their companies were pursuing incremental advances, like line extensions. (How many varieties of Coca-Cola will we really drink?) Along the same lines, 66% said their companies were more interested in short-term gains than long-term ones. (Same question.)

In the U.S., at least, companies may not be getting better at innovation, either. Accenture said 73% of American respondents said their employers didn’t learn from mistakes. (In the U.K., only 30% were such slow learners.) Respondents blamed failed innovation mostly on inability to meet customer needs, being late to market, and incorrect pricing.

What’s going on at your companies? Are you seeing any lift in innovation allocations?

Patent Volume Isn't the Best Innovation Gauge

Posted by: Michael Arndt on November 22, 2009

Patent volume, based on new analysis, isn’t necessarily a valid proxy for innovation. Tallies of U.S. patent grants are published every year, giving IBM reason to strut since it invariably comes out on top. (Last year, as IBM notes here, it was the first entity to bag more than 4,000.) And recently I wagged a finger at Ford Motor in a blog post, based on patent data from Thomson Reuters that showed Ford ranked far behind in new patents for alternative energy and other innovative automotive technology.

But a study by the Patent Board, an intellectual-property consultancy, shows there are other—and better—ways to quantify innovation. The company looked at all active U.S. patents in one field, automobile collision-avoidance technology. Ranked by sheer volume, Honda Motor is No. 1, with 54. That’s almost twice second-place Panasonic, which has 28. (Only two U.S.-based companies make the Top 10: TRW Automotive, in fifth place with 22, and Delphi, which is tied for eighth with 17.)

Ranked by other metrics, though, Honda isn’t a leader. In a scorecard in November’sIntellectual Property Today, the Patent Board publishes five more ways to put a value on patent portfolios, including citations by other patent seekers, innovation cycle time, and age. Honda does no better than second and as poorly as sixth. Delphi leads, for instance, when it comes to having the newest patents, while Fuji Heavy Industries is fastest at turning ideas into patents.

Remember this when the list of 2009 patent winners is announced.

Top 10 Consumer Electronics Innovators

Posted by: Michael Arndt on November 25, 2009

Everyone loves a list, especially (at this blog at least) one that ranks innovative companies. We publish our own annual Top 50 roster, which you can see here. Strategos, an innovation consultancy that is owned by UTEK, just released a Top 10 list of its own.

The rankings overlap a bit—Apple, LG, Microsoft, Nintendo, and Sony are on both—but the order is quite different. At BusinessWeek, Apple is first, followed by Google, Toyota, Microsoft, and Nintendo. Strategos puts LG in the lead, trailed immediately by Nintendo and Microsoft. As for Apple, it ranks 10th.

One obvious reason for the different lineups: The Strategos list includes only consumer electronics companies, while ours encompasses companies across all industries.

Since I first posted this, I had a chance to talk with Strategos CEO Peter Skarzynski about Apple’s relatively poor showing in the ranking, which is based on a consumer survey. Apple’s chief shortcoming, he says, is “uniqueness.” Its products are so common today that they seem commonplace. Even Microsoft, lifted by high scores for the Xbox and Zune, rates 15 points ahead of Apple on uniqueness.

LG also does well on uniqueness, as well as quality, usefulness, dependability, and, in some regions of the country, coolness.

Skarzynski says Apple’s results floored everyone at Strategos. “We triple- and quadruple-checked the data,” he says. They checked out.

Here’s the entire Strategos Top 10:

1. LG
2. Nintendo
3. Microsoft
4. Sony
5. Hitachi
6. Canon
7. Sharp
8. NetApp
9. Audiovox
10. Apple

We Like Chocolate and Beer. Cigarettes, Not That Much

Posted by: Michael Arndt on November 17, 2009

Turns out candy is dandy, at least during recessions. Beer is pretty OK, too, but cigarettes are a vice that even smokers increasingly say they ain’t worth it. Overall, says the latest customer satisfaction survey by the University of Michigan’s Ross School of Business, American consumers are as happy with grocery-store goods as they were three months ago.

Among food companies, Hershey and Nestle both moved up 2 points while Mars gained 1 point from a year earlier, to an average score of 86 (out of a possible 100). That’s their highest score ever. The trio last had an upsurge that big in the 2001 recession and in 2004, when worries about the widening Iraq War and higher fuel prices had consumers scurrying back to comfort foods, says Ross School Professor Claes Fornell, who heads the index.

Not every comfort food maker is more beloved, however. Conagra’s standing dropped 7 points from a year earlier, to 78, an all-time low. Fornell attributes the decline to higher prices—Conagra jacked them up an average of 25%. Heinz retains its No. 1 ranking, with a score of 89.

Beer still hits the spot. Customers say they’re more satisfied with their beer buys than ever before, pushing the industry’s average score to 84. The biggest gainer: Anheuser-Busch, which rose 4 points to an all-time high of 85. Yes, the company is no longer American. But U.S. consumers appreciate its cheaper brands Natural Light and Busch. Meantime, Coors, which is generally pricier, sagged 2 points, to 81. Miller moved up 1 point, to 83.

Higher prices, this time from federal taxes that more than doubled, made smokers think less of cigarettes. Both Philip Morris and Reynolds American sagged to 72, falling 9 points and 8 points, respectively. Neither had ever been below 75.