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Innovating in Today’s Economy

27 April 2010

Below is a comment to an article in this week’s Business Week. The article is a debate of sorts about how to best innovate in today’s economy: customer-focused vs. needs based on new ideas. The full article can be accessed here.

The most interesting part of the article were the comments that followed, in particular this one, which I am quoting in full, below. The points that the commentator makes are worth noting for how well they summarize how and why innovation can both help and hurt a company. Bottom line: innovation has to lead to profits and to do so it must answer specific questions that the customers have. (Side note on Apple, the genius of which is creating products that answer questions customers didn’t know they had.)

To quote Charles Kettering (former head of research at GM, inventor of freon, the electrical starting motor, and holder of 140 patents), “A problem well-stated is half-solved.”

Question: How do we define the problem for customers for the purposes of innovation?
Answer: Customer needs define the problem.

More to the point, customer needs become the criteria that are used to judge a particular idea’s worthiness.

Full comment below and full article here.

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Innovation without an understanding of customer needs?

Surely you’ve heard the Roger Miller song, “You Can’t Rollerskate in a Buffalo Herd.”

You can expect similar results from either of those approaches.

If you are executing an innovation process without an understanding of customer needs, you are really just creating a bunch of science projects. Oh, sure, they can be fun to do. They can be interesting. But nobody is going to purchase something just because the company thought it was fun to build. Have you had someone show you four hours worth of family video detailing their vacation to Michigan? I’m sure they enjoyed creating it, but I’m doubting that you asked for a copy to watch later on your own.

In the innovation space, this is a real problem. Universities all across this country are buried in intellectual property that has no utility. Companies spend billions going down technological rabbit trails with no returns in investment.

What is the problem here?

The problem here is that many are executing innovation with the intention of profit-creation without understanding that this is fundamentally a problem-solving exercise. To solve a problem…., any problem…, you must first define that problem.

To quote Charles Kettering (former head of research at GM, inventor of freon, the electrical starting motor, and holder of 140 patents), “A problem well-stated is half-solved.”

Question: How do we define the problem for customers for the purposes of innovation?
Answer: Customer needs define the problem.

More to the point, customer needs become the criteria that are used to judge a particular idea’s worthiness.

OK now, I’d like to respond to a few specifics of the dialogue above:

Mr. Thull:
Your argument is all about creation of value, yet you provide no definition of value. I respectfully submit that value is defined by customers, and therefore, by their needs. Your statement about iPad, AT&T, etc. describes the network externalities which enable customer needs to be satisfied to a higher degree. However these factors are separate from the customer needs themselves. My personal customer needs for my iPhone include communication and entertainment. I do not have a need for Apple to be integrated with AT&T. I also do not have a need for the application developer system that was created. In fact, if Apple becomes too in love with its products and solutions rather than customer needs, then it will be displaced as well. Think Blockbuster.

Mr. Walker:
Your comment about Henry Ford’s quote shows that you are confusing customer needs with currently available solutions. If Mr. Ford asked customers what they needed, and if he had expertise in acquiring data from customers, the customers could have easily told him that they would like to travel from point A to point B in comfort, safely, and as fast as possible. With this input, he could have provided a better solution, such as an automobile.

Mr. Dovgodko:
You are also confusing customer needs with solutions. Please read my clarification about Henry Ford’s quotation.

Mr. Innovationist:
You make good points. Wall Street encourages behavior which is not good for a company’s long term growth. Peter Drucker was writing about this in the 1980s and it is more true than ever today. SVA-type performance measurements will destroy a company slowly. You say that you “agree with Jeff,” but based on the rest of your comments, I am hopeful that I have convinced you otherwise.

Attempting to innovate without customer needs provides no direction, no idea of what problem is to be solved, and no criteria by which to judge any idea that is presented–no matter how creative, useful, or interesting.

So, you can’t innovate without customer needs any more than you can rollerskate in a buffalo herd, but at least “you can be happy if you’ve a mind to.”

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Allred Updated

10 February 2010

We wrote to Shea Andersen, Press Secretary for Keith Allred, asking if she had any comments or thoughts to add in regards to the previous post.  Ms. Andersen was kind enough to respond and included a few links in her email with what were Mr. Allred’s previously stated campaign goals.  To his credit, Mr. Allred does indeed have a proposal for helping to narrow the budget deficit.  His plan is to eliminate state sales tax exemptions.  (What Mr. Allred does not have is a good web site.)

Mr. Allred’s plan is, according to Ms. Andersen, the following: eliminate some of the over $1B in sales tax exemptions.  The increased revenues would allow the state to reduce the overall tax rate and encourage business activity.  We commend Mr. Allred for the proposal.  What we would like to see if a complete elimination of all the exemptions.  The tax code is an inefficient and terribly opaque way for the government to incentivize business activity.

While some will claim that Mr. Allred’s plan is a tax increase — and in a sense it is — but it is were coupled with an overall reduction in the state sales tax, then there would be many, many more that would see there overall tax burden lowered than increased.  Those that raise their voices against the proposal seem to miss the point that Idahoans are paying more in taxes right now than they would under the proposed scenario (assuming a reduction in the overall rate).

Governor Otter remains fixed on lowering the State’s cost of doing business, and we commend him for that … and for his efforts to secure the stationing of the F-35 here.  There is common ground here for the politicians.  We hope that partisanship and election year politics will not prevent our State politicians from coming together to resolve our pressing problems.

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A suggestion to the Allred team: call the plan tax “equalization”, as that’s what it really is.

Allred Criticizes Otter … Offers Nothing Constructive

8 February 2010

In another example of politics as usual, Keith Allred, Democratic candidate for governor, issued a press release on Friday criticizing Governor Otter for “irrational pessimism and recklessness”.  What qualifies as “irrational pessimism”?  What does that even mean?  One cannot help but see the irony in Mr. Allred’s attack, as, in the same breath that he criticizes the Governor, Mr. Allred states: “These are the toughest economic circumstances in Idaho in my lifetime.”  We’re curious here at GSBR how Mr. Allred’s pessimism differs from Gov. Otter’s, and how the former’s is rational while the latter’s irrational.

Mr. Allred continues in his press release to criticize Gov. Otter’s proposal to cut funding to Idaho Public Television, the Parks Department, and to education as “reckless”.  The great thing about being a candidate is not having to do anything.  Just sit back and throw stones.  How exactly would Mr. Allred improve the State’s budget?  We don’t know.  He offers nothing on that front.  Mr. Allred claims that Gov. Otter is “surrendering” in the face of the economic difficulties, and that he, on the other hand would “roll up his sleeves”.  (A lesson that he learned on his grandfather’s ranch, apparently.)  But the Governor is the one doing the actual work; the one actually making difficult decisions.  Allred fails to offer anything constructive.  Nothing.

Our suggestion to the pretender to the governor’s seat: describe what you would do differently.  What parts of the budget would you cut, if any?  How would you close the budget gap, which is only growing larger.  What taxes would you raise?  Where do you stand.  In the words of Jim Rome, “Have a take.”  Unfortunately for us Idahoans, Mr. Allred doesn’t, and we’re all the less fortunate for it.

Our tone is not meant to be snarky.  But we are concerned that in a time of upheaval and uncertainty, Idaho is getting the same-ol’-same-ol’.  We wish that politicians see the ridiculousness of saying one thing and doing another.  We want leaders to lead.

Upcoming Canyon County Commercial Real Estate Forum

3 February 2010

On Wednesday, 10 February 2010, a panel of brokers will discuss the state of the Canyon County commercial real estate market.  The hour-long forum begins at 7:30 a.m. at the Hampton Inn and Suites.  (Source: Idaho Statesman)

The Portico at Meridian Announces Launch

3 February 2010

Gardner Ahlquist Development has announced that it will hold a press conference on Thursday, 4 Feb 2010 at 1:30 p.m. to officially launch The Portico at Meridian.  The Portico is a 24-acre mixed-use development.  (Source: Idaho Statesman)

Scentsy has announced that it will occupy half of the 134,000 of office space, and a number of food chains will be occupying parts of the retail space.

GSBR will be attending the press conference and will provide further details.

GSBR Thoughts:  Nothing bodes better for the local economy than the announcement of new developments … particularly those with tenants already in place.  That being said, the amount of unleased retail and commercial space is staggering.  We are continually surprised to see new buildings going up without tenants.

Bill Proposes to Punish Businesses that Hire Undocumented Workers

1 February 2010

On Friday, January 29, Senator Mike Jorgenson (R-Hayden Lake) introduced a bill the Employment of Unathorized Aliens Act (the “Bill”) that would fine businesses that knowingly hire undocumented workers.  The basics of the Bill are the following:

– employers have to verify new hires legality by using the e-verify system;
– misdemeanor charges of $50/day — up to $50,000 — for each infraction;
– business license suspension of 15 days for first infraction, 1 year for second, and permanently for third;
– attorney general and county officials in charge of enforcement; and
– legal proceedings prior to any enforcement.

Full text of the bill is available here.

Gem State Business Review Thoughts:

1. Highlights the Need for Immigration Reform.  GSBR believes that our country needs to make it easier for those that want to live and work here legally.  We could write an entire blog on the question of immigration, so let us merely mention the proposed legislation underscores the fact that our immigration policy is a failure … and things needs to be changed in a comprehensive manner.

2. Enforce Existing Laws.  Isn’t it already illegal to knowingly hire undocumented workers?  Yes.  (See, The Immigration Reform and Control Act of 1986.)  It seems that the more appropriate use of the State Legislature’s time would be helping our businesses and citizens through the incredibly difficult time, rather than creating a new law that does the exact same thing as one already on the books.  Announcing new bills makes for good politics, not great leadership.

3. Why Impose Enforcement onto Business? The first question that comes to mind: why are Idaho business being made to become the federal government’s unpaid border agents?  Why should they suffer the consequences for the inability of the Dept. of Homeland Security to close off the borders?  Sen. Jorgenson in a March 2009 editorial claimed that the process of verifying a prospective employee “should take less than 5 seconds”.  The fact that it should take less than five seconds doesn’t really address the fact that it’s an additional burden being imposed on businesses.  That’s like saying, “Yes.  We’re raising taxes, but only by a tiny bit.  Don’t worry.  You won’t know it’s missing.”

4. What Would Enforcement Mean? Here’s where the rubber meets the road.  Let’s assume that instead of 1 January 2011 (the date for enforcement to begin in the bill), that enforcement would actually begin next month, on 1 March 2010.  Let’s also assume, for the sake of argument, that there was 100% compliance with the law, so that every single business in Idaho fired all of the currently employed undocumented workers.  Let’s also add the following suppositions to the hypothetical: (i) undocumented workers are found almost exclusively in the construction, agricultural, and physically intensive service businesses (e.g. landscaping, cleaning, etc.); (ii) these undocumented workers are primarily working for small businesses; (iii) these small businesses are struggling financially, and (iv) the total number of undocumented workers currently employed in the state is 37,500, or roughly 5% of the state’s total workforce.  (This number is most likely incredibly aggressive, but we’ll go with it for the sake of the hypothesis.)  (Tangentaly, Idaho’s most recent unemployment figure was approximately 68,750.)

So now let’s go through the consequences of the hypothesis.  On day 1, there are another 37,500 people without jobs.  These people are now buying fewer groceries, fewer drinks, fewer clothes, fewer movie tickets, and stop paying rent.  So the businesses that were catering to them are less profitable than they are currently.  Those that had previously been contributors to the state (on a net basis) become an increased strain on a state welfare system already stretched beyond capacity.  That’s the downside.  But on the upside, now Idaho cuts its unemployment by more than half because of all the jobs that are open.  …  Uhhh, wait.  Most of the jobs aren’t going to be filled.  As study after study has shown, there are certain jobs that Americans are just not going to do.

Is the former middle manager of a tech company going to go sign up to put up sheet rock for the construction company that built his house?  Why would he if he is making more money from welfare.  Is he going to do it even if he comes out $100 more per month?  To go work outside in the rain and the heat?  Would you?  Is the former attorney going to go clean the office she once worked at?  Would you?

So Mr. X of XYZ Landscaping, who fired two undocumented workers making $10.00/hour, now has to pay two new employees $15.00/hour.  Mr. X attempts to pass the increased labor costs on to his clients, but they refuse and say that they can do it themselves if he wants to raise his rates.  “These are tough times, in case you haven’t heard,” they tell him.  Mr. X’s profits, which were razor thin to begin with (he hasn’t been able to raise his rates in two years), are now non-existent.  His belt-tightening increases … fewer meals out, fewer new clothes, fewer of everything.  Eventually he realizes that the situation isn’t sustainable and he has to let go one of the new workers.  Net result: 1 job loss.

Mr. X and XYZ Landscaping are fictitious, but basic economic theory states that less supply = higher prices.  And evidence shows that Americans are unwilling to do many of the jobs that are now being done with undocumented workers.  So, in the worst economy of the past 50 years the Bill would seriously — if not mortally — wound the kinds of Idaho businesses that are right now just hanging on by a thread.

The GSBR does not endorse a race to the bottom by Idaho in regards to Immigration Law enforcement.   But at a time when job creation by new businesses and encouraging established ones to expand is needed more than anything, why further harm already extremely fragile parts of the economy?

Our state government should be finding ways to help our businesses, to improve our education.  Populist panhandling may make for a good headline, but where would it leave us as a state if the Bill were passed.

This Week’s Poll: Jorgenson’s Bill

1 February 2010