Moneyball follows Billy Beane (Brad Pitt in the movie), general manager of the small market Oakland A’s, as he looks for a

new business model in 2003 that would let him compete with the big market teams (hello, Yankees and Red Sox).

That means that it’s a movie about reinventing a business to adapt to evolving business conditions.  And challenging old beliefs around stolen bases, home runs, sacrifice bunts, and strikeouts with a new way of thinking around the importance of getting on base.

Beane is helped in his quest by Peter Brand,  a fictional creation based on Yale grad and numbers wonk Paul diPodesta who currently works with the Mets (played really well in a deadpan manner by Jonah Hill). Their methodologies helped them find players that were undervalued by mainstream baseball and put together a team that surprised everyone.

It all works on a lot of levels and it’s a really good movie (Siskel & Ebert would’ve given it two thumbs way up).

Go see it.  I mean it.  Then look at your business and your clients’ businesses through a different lens.

VIBCO has been manufacturing vibrators for nearly 50 years.  In today’s highly competitive environment of low cost labor overseas, VIBCO has found a way to thrive in its segment without moving production off shore.  A number of years ago, the company embraced lean manufacturing whole-heartedly, seeking operating efficiencies at every level of the company.  The passion for lean manufacturing starts with cigar-chewing, Army helmet-wearing Karl Wadensten, VIBCO Vibrators President (who looks like a slimmer Bill Parcells).  The passion extends to the employees assembling each industrial vibrator.  VIBCO welcomes other manufacturers, business students, government officials, and all who are interested to take plant tours and learn how lean manufacturing has permeated the operation.  Each employee on the plant floor speaks with genuine enthusiasm about lean as this change came from employee empowerment after employee training on lean tools and methodologies.

While everyone acknowledges that lean is a constant learning process and that progress can always be made, the results are impressive.  Even in the severe downturn of 2008 and 2009, VIBCO did not have to lay off any workers.  They have increased productivity and focused their whole thought process around the manufacture of these machines so much that Wadensten hosted a daily radio program (www.790business.com) to discuss lean with other lean experts.

Wadensten empowers his employees to speak up when they have an idea of how to make things better.  And they do it to provide better service.  Their goal is to manufacture and ship these industrial vibrators (say, for sand and salt spreaders in the winter or to construction sites year round) in two days.  Lead times were 3-4 weeks in the past and as a result of lean, lead times are now at 1-2 days — a significant differentiator from competition.   These are now built to order as opposed to building a run of 50 at a time and carrying them in inventory.  This means fewer parts to carry in inventory, less space needed for storage, better communications between workers.  Heck, even the mailroom re-organized and relocated to carry fewer boxes and now use color codes to better identify urgency and priorities.

Wadensten must be congratulated for this change.  Why? Employee empowerment is not automatic, even with lean.  Management must give up power in order for employees to be empowered.  This means that management must shift from the “command and control” management style to the coaching and facilitation management style.  It’s a challenge that not all management teams can make.  It is difficult for management to give up power just as it is difficult for employees to accept their new power.  The concepts of lean are very straightforward … it is the behavior change for both management and the employees that make the process a real challenge.

It does mean better cash flow and lower borrowing needs which leads to  lower interest expense and more funds to invest into the business.  Wadensten knows his advantage is in being nimble, providing great service to his customers with live answers to calls for product and delivery help, reaching out to educate with  better ideas to tackle problems in the field, and sharing experiences around best practicing.  This way, they don’t have to compete on price because they’re giving value.  By shipping in two days, VIBCO keeps the competition from China and Brazil at bay and keeps manufacturing  jobs in Rhode Island.

Make no mistake – this is hard work.  Every employee is challenged to perform better, constantly think about improvement.  But this bottom-up empowerment drives process and product innovation, making each worker a vital part of the company’s future.  Each VIBCO employee is asked to identify and correct the “8 Deadly Wastes”:  Overproduction, Waiting, Transport, Over-processing, Inventory, Motion, Defects, and Underutilization.

This company embodies so many of the values that we highlight in Intangible Capital:

• treating people, partners and shared knowledge as the core assets of an enterprise;
• using measurement for learning rather than just as a management weapon;
• beating “low cost” competitors by just being smarter.

It’s a recipe for the future of American business. One I hope you will join us in building, one company at a time.

As our research with Chief Innovation Officers found, it is not enough to just have an innovation process. The process needs to be supported by an ecosystem that has the right people, knowledge, culture, and external relationships, in other words, the right intangible capital. What are the right components for your innovation ecosystem? Let’s look at each component in more detail.

Business Recipe

How you define your business has a lot to do with what kind of innovation happens there. If you have a laser-like focus on a very specific market or product, it is unlikely that an innovation initiative will take root in your organization that moves you to a new market. If you view your business opportunity broadly enough to allow for room to meet untapped needs of your existing customers or move into related markets, there will be room in your business recipe for new markets. Your employees will know that ideas that take you in new directions are welcome. If your focus is on operational excellence, that is probably the kind of innovation that will emerge from your organization.

Think about Wal-Mart. For many years, they had an intense focus on expanding their number of stores and lowering costs. This focus on cost (a deliberate strategy) led the company to become a leader in supply chain management through countless tweaks and improvements (innovations) both inside and outside the company that became institutionalized (emergent strategies). More recently, they have added a set of goals around sustainability, with the aim as stated on the Wal-Mart website “To be supplied 100 percent by renewable energy; to create zero waste; and to sell products that sustain our resources and the environment.” Given its size and management history, it is likely that this deliberate strategy will provide the context for countless innovations that will influence and shape the company’s strategy into the future.

Human Capital

Want to make sure that you will have an innovative organization? Then make sure that you have the right mix of experience and competencies among your management and employees. Work to keep your staff fresh and stimulated. Provide innovation-related training opportunities, including training in your innovation process. Align employee goals and incentive systems with your innovation goals. Google’s success has given them a luxury unseen in almost any other company. Their employees are encouraged, even required, to spend 20% of their time on an activity of their own choosing that is at most tangentially related to their “real” job, 10% on something completely unrelated and only 70% on their core job. CEO Eric Schmidt has said, “Virtually everything new seems to come from the 20% of their time engineers here are expected to spend on side projects. They certainly don’t come out of the management team.”

Culture plays a part too. As we explained in Chapter 2, there is not necessarily a right or a wrong culture for a company—the important thing is to understand your culture and how to work within it. If you have a culture that is forgiving of mistakes and welcoming of new ideas, you will probably have more success with innovation. If your culture punishes mistakes, a change will have to be made before your people will be willing to stick their necks out with a new idea.

Relationship Capital

More and more innovation is being developed collaboratively with customers and external partners. Who knows better than your customers the unsolved problems they have. If you have a good relationship, working together to create new solutions will only strengthen it. We encourage an exercise we call “Strategic Conversations” with your customers and other stakeholders. This is where you or a third party talk to your stakeholders about how their business is changing, what their biggest worries are, how they see their market evolving. This is not a natural conversation for most companies. Most companies automatically default to talking about current sales or the day-to-day issues of the relationship. This is a time to take a step back and tap into your customers’ wisdom. This kind of exercise never fails in identifying a new need or new application of a company’s expertise. And the fact that it came directly from a customer gives the idea credibility internally as well as externally with existing and new customers.

Many companies are also opening their thinking even more. This can be as simple as inviting an artist or an expert in a creative field to speak to your people about how they approach the process of creation. This kind of activity can help stimulate new ideas and approaches internally. Some companies are taking the idea of external collaboration to the extreme of posting open problems on the Internet and offering a prize for the best solution. Netflix recently completed a three-year contest where they offered $1 million to a person or team who could improve the accuracy of their film suggestions by at least 10%. The company received more than 43,000 entries from over 5,100 teams in over 185 countries. Two teams reported gains over 10% and a winner was ultimately announced in September 2009. Immediately after the contest was closed, the company announced a new contest, Netflix Prize 2.

Structural Capital

Hopefully, you are constantly improving your structural capital as a matter of course. These incremental improvements are a form of innovation and can be a significant source of performance gains in most companies. Whether you need to or choose to track this kind of improvement in your innovation system will probably be a matter of scale and/or priorities.

We have already made the case for a separate process to support innovation activities. A related process is a system for knowledge sharing and/or learning. This is the goal of traditional knowledge management systems but it is also the goal of social media projects being implemented internally in many companies. Either way, sharing of knowledge will fuel innovation.

Finally, a system for intellectual property can be an important adjunct to the innovation process. First, you need to seek protection for the appropriate IP. Then, having received it you need to monitor conflicts externally to protect your competitive advantage. Periodic review of your portfolio will ensure that IP is being used to its best advantage internally. Lacking that, it may make sense to create avenues where your organization can leverage IP value through external partners and/or licensees.

Conclusion

Innovation is ultimately an exercise in leveraging knowledge. Thus innovation strategy is inextricably linked with intangibles management, with the successful operation of your knowledge factory. All innovation requires a sound ecosystem, which can best be understood as your intangible capital. Large-scale innovation may require an innovation process, a segment of your structural capital that ensures efficient generation, selection, development and commercialization of new ideas. Successful innovation is the operationalization of all the ideas of this book up to this point: the operation of the knowledge factory networks at all levels and the balance that needs to be struck between managing up and managing down in these networks.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

But the other face of strategy, emergent strategy and innovation, has been getting a lot of attention lately. So much has been written about innovation, in fact, that it is beginning to feel like a fad. But we don’t see it as a fad. We see innovation as an integral part of the story of management in the knowledge economy. A lot of it has to do with the dynamic that we keep coming back to: the tension between the bottom up and the top down. We have made the case that just about every business today is dependent on knowledge for growth and competitive advantage. And in a knowledge-dependent business, strategy cannot just flow from the top down.

The story of the increased importance of innovation is a continuation of the story about commanders versus conductors described in the last chapter. In fact, a classic image of strategy was the general standing on the top of a hill. He was a seasoned soldier who has many years of experience under his belt. He had studied strategy and experienced how it gets played out on the field of battle. In the conduct of a war, the general possessed the most complete information set of anyone. He had information about the immediate challenges at hand as well as the progress in other fields of action. Using the counsel of his officers, he developed a plan of battle. As it got underway, he could see the entire field of battle. He had the best information and the skills to apply it. The creation of strategy in this case is a top-down affair. And the strategy was implemented through command and control.

The military still uses an extraordinary level of planning. The process of planning is a form of training, thinking through possible future scenarios. This thinking helps prepare everyone involved for the contingencies that will face them on the field of battle. But for all the reasons mentioned in the previous chapter, even the military’s approach to command and control has evolved. This is because the soldier in the field has better communication equipment than ever before. And the type of wars we are fighting are against enemies that are dispersed. It makes sense to find ways to empower soldiers on the ground to improvise within the constraints of the overall mission.

This shift is also happening at big companies with many factories and installations around the world—and for many of the same reasons. Like armies, big companies require coordinated action, uniformity of production and a common purpose. This kind of overall vision and direction will not disappear in the knowledge era. But it can and must be complemented with management approaches that balance the top down with the bottom up. Markets change quickly in today’s world. No one has a full set of information so decision-making needs to be decentralized.

The need is equally strong in smaller companies, although the task is usually made easier because the scale keeps those at the top closer to those at the bottom than they would be in a larger organization. But old habits die hard and there is often a gulf between bosses and employees who work in the same office, no matter what the size of the organization. Successful innovation requires bridging that gulf. And the need to accomplish this has never been more pressing.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

Where: Babson Executive Conference Center, Wellesley, MA
Time: 7:15 – 9:00 AM Breakfast will be served.
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Since Mary and I are consultants, we naturally researched the college application process to figure out how to get from here to there in the most efficient and painless way possible. We spoke to many people who had successfully lived through it and we picked up a few pointers. One of the key tips was to start early.

Our son, David, is a pretty mature kid so he understands that college should play an important part in his development. Mary took him along to her 25^th reunion a few years ago to Rice and they did a campus tour and informational interview. In the presentation abut Rice, David heard (not from his parents) that good grades are important, SATs play a big role in evaluation and that outside activities help shape the type of person you are. Luckily he heard this as a freshman and took it seriously enough to put together a good track record.

The next step was to figure out what type of school was the best fit, could challenge him and, most importantly, make him happy. When he was a sophomore, he and I went to an Orioles baseball game at Camden Yards in Baltimore and saw a few schools in the D.C. area. That gave him a feel for public versus private, large versus small school, rural setting versus urban. After his junior year, our family took a road trip to North Carolina for a wedding and saw five schools (actually, Mary and David saw the schools while our other son Sam and I played nine holes of golf near each college). The last one they saw, Elon University in central North Carolina, seemed to have everything he wanted: international studies, internships, beautiful campus, better weather, good male-female ratio, outside of New England and a manageable size at 5,000 total undergraduates.

One of our clients told us a few years ago that a great way to manage the stress of the college application process was to have the essay for the common application done before the end of summer after junior year. This was brilliant because when David decided to apply to Elon early decision, his application was due by November 1st, and his essay merely required some editing. After one more ‘sanity check’ visit to Elon in late October, where he was able to sit in on an International Studies class, he pulled the trigger and applied early decision.

He was accepted to Elon on December 1st. We are all very happy and relieved to be free from the stress of waiting the next five months.

I hope you don’t think this is bragging about our older son. It’s not. He’s a fine person, but many people have wonderful children. I hope that the story shows that when you are faced with an overwhelming or complicated process, either personally or within your business, that being proactive and breaking down the process will help ensure that you get through it successfully.

• Make sure you have a business plan.
• Resolve to continuously promote your business.
• Set up action plans for your employees.
• Survey everyone. (We love this idea and call it Strategic Conversations)
• Make sure you are measuring the important things in your business.
• Review your business performance measures.
• Make a resolution to celebrate when you’ve accomplished a set goal. You and your team will take pride in achievement and can get started on the next target.