Corporate innovation can occur in many organizational places apart from technology. Garry Ridge, the CEO of WD-40 Company, the manufacturer and marketer of popular WD-40 lubricant, devised innovative leadership and innovative marketing programs to transform a venerable U.S. household brand into a global entity.  When Ridge became CEO of WD-40 Company in 1996, the company had become stagnant marketing one product - WD-40. In fact, the company needed more than its own lubricant to move out of its stuck gears. A strong global marketing vision, a profound concern for constituents, including employees, a desire to outsource, a well-thought out corporate strategy, and an attitude that people have learning moments rather than failures all helped Ridge succeed.  In 2009, Ridge collaborated with Ken Blanchard, the best-selling management book author, to write Helping People Win at Work:  A Business Philosophy Called "Don't Mark My Paper, Help Me Get An A." The book profiles many of the innovative leadership principles Ridge pioneered at WD-40 Company.

Enterpriseleadership.org sat down with Ridge to learn how he turned a one-brand U.S. company into a well-oiled global marketing and sales machine offering a variety of industrial and household lubricants and cleaning products. Here is what he said:

EL. What challenges did you face when you become CEO of WD-40 Company?

GR. Being the CEO of a company these days has to be something you really want to do, whether you are selling Apple computers or WD- 40. The responsibilities and the depth of the needs differ greatly today than last year or 10 years ago, especially with the changes in regulations. On the WD 40 side, we had a company conditioned to do the same thing for 40 years. Every time the company woke up every day, it sold the only product it had - WD-40. The culture and the operating style had to change. We said that we had to wake up one day and do things other than WD-40. That became a major challenge. The transformation consisted on going from silos of knowledge to what I call fields of learning. Everyone knew most everything about what we did. To bring in new ideas and ways of doing things, the culture needed to change so we could challenge ourselves to become competent in a few new areas. Changing a corporate culture is not easy to do. You are dealing with the most precious and the most complicated thing in the world -- people.

EL. How did you begin the transformation?

GR. Back in the early 1990s, I went to a national retailing association seminar where I heard the vice chair of Wal-Mart speak. He said that if you want to survive tomorrow, you have to separate it from today. That statement stuck in my head for several years. Because we had never done anything like this before, we formed a group of people who would just focus on future revenues. We started with our research and development group, which we called Team Tomorrow.  I selected one of our long-standing executives who thought globally and had a marketing background as the Team Tomorrow leader. We set this organization on this track. We gave them a goal to create $100 million worth of incremental revenue within a specific period. We wound up beating that goal. After the fifth year, the team generated $165 million worth of incremental revenues.

EL. How did you begin to drive innovation and conquer additional global markets? 

GR. We had a three-prong strategy. Our first goal was to expand our distribution globally. Today we sell more WD-40 outside the U.S. than we do in the U.S. That is a robust growth area for us. We said what geographic opportunities look good and how we should attack them. We set up an operation in Europe. Our operation there today is larger than what the entire company was back in the mid 1990s. It is in excess of $100 million in revenue and has had an annual compounded growth rate of about 19 percent for the last five years. We opened an operation in Malaysia to manage our Asian operation. Recently we opened a subsidiary in mainland China.

Next, we wanted to expand by brand. We looked for some strategic acquisitions. We acquired four brands over a period of five years. Then we said, 'What sort of business do we want to be in?' We had an obvious answer to this question, 'We are going to be in the squeaks, smell, and dirt business where we get rid of squeaks, smells, and dirt. We can to do it with products that deliver exceptional performance at extremely good value.' Where we have the right to play is where we have our greatest strength.

Last, we wanted to expand our trade channels by selling WD-40 in multiple trade channels. You can now get it in hardware stores, grocery stores, home and industrial stores, and sporting goods stores. Most products limit themselves to one trade channel.

Based on the strategic analysis of our organizational strength, we looked at what products, brands, or extensions of those brands could help us to derive more revenue. As a result, we expanded into the 3-IN-ONE brand, which was one of our acquisitions. We extended that from regular drip oil into a full range of multi-purpose maintenance products. We took that to the world. We are in the middle of further expansion in the new brand called BLUE WORKS. It is an industrial high-end range from the WD-40.

EL. What is your revenue like right now?

GR. For fiscal 2008, we did more than $300 million. Revenue for fiscal 2009 was slightly less than $300 million. On a consistent currency basis, we would up marginally on last year right now. With the strengthening of the U.S. dollar against the pound, we have lost about $30 million internationally by translation only. Last year we had translated European business into the U.S. at $2 per pound. It has been as low as $1.40 per pound. It just disappears; you cannot do anything about it.

EL. What kind of investments did you have to make in technology to develop new products?

GR. We invest between $3.5 million to $4 million a year in our Team Tomorrow, which is now our research and development area. We outsource much of the functions of the research and development. I jokingly say that we have the most up-to-date research lab in the country because we go out and rent what we want on a daily basis. We do not have a building full of scientists. Instead, we have many scientific partners. We will ask them to help us develop this product. We manage the process more than do the work. Outsourcing for us has been economically feasible because we always have access to the latest technology. If we had to maintain our own Web site, we would need to update it daily. We can do go out to the most modern places and ask the brightest in the world to help us.

EL. Did the transformation change your governance, and strategy development and execution?

GR. Yes. We became more inclusive with our people. We say that we do not make mistakes. Instead, we have learning moments. A learning moment is a positive or negative outcome of any situation. In fact, the learning moment has been the backbone of the change that we had.  I have a Web site called the LearningMoment.net, which has much of our philosophy on it.

EL. Did you dabble in analytics for sales, marketing, and distribution?

GR. All of the time! It is part of our determining where we have the right to win and the right to play. We look at trends within categories, where markets tend to move, and what trade channels deliver more than other channels. We also look at if our consumers move from where they shop. We look at that globally because it changes in every country of the world. The analytical database and information base in China will differ from that of the U.S. Most of our business in China goes into more industrial and manufacturing. In the U.S., our business consists mostly of household and home consumption. We certainly look at these leading indicators of where business is moving.

EL. Can you share an anecdote about the challenge of marketing WD-40 globally, such as in China?

GR. We tend to do grassroots marketing. For example, several years, I had a booth at a Chinese trade show where we sampled our product to Chinese industrial factory workers. No one paid attention to me because my Chinese description of WD-40 translated to lubricant. I asked myself, 'Why don't these people want a lubricant?' I could not help noticing the line of people picking up empty paper bags at the Toyota stand. I quickly realized that these people could use the bag to bring home rice from a store. To them, lubricant meant dirty diesel oil, which they did not need. Based on our additional research, we changed our message to pitch WD-40 as an anti-rust lubricant. They could easily relate to rust. Within minutes, we had security guards on our stands stopping people from destroying it. People were in a frenzy to get the product. This example became a learning moment. You need be awake enough to understand if there is a need, and you identify that need in the market correctly.

EL. Can you describe the research you do to make sure you have the right product technology? Do you leave that to your outsourced partners?

GR. We do all of that. It starts with the end users. Our research consists of following our end users around. We do focus groups. We do broad-based Internet concept studies. We use all of these tools. We had a company called Edison Nation go out and ask end users to suggest new products and uses for WD 40. We use as much about the customer or about the user information as we can. Then we take that into concept testing. We have used all of the tools that are available from time to time.

EL. Are you doing anything with social media such as Procter & Gamble?

GR. Yes. We just set up a program where we put out a social media page. It asks people to share with us their money-saving tips for using our products.
Before social media became commonplace, we formed the WD-40 Fan club. In 2000, we went to our end users and we ran a competition. We wanted to know their favorite use for WD-40. In the U.S., we got 400,000 entries. We distilled that down to the top 2,000 uses. At last count, the WD-40 fan club has 135,000 active members. They interact through out Web site. We feed them user information, such as tips about WD 40. We reach out to them for research.

EL. To go global what changes did you make to your supply chain?

GR. Globally we mirrored what we did anywhere else in the world. We outsource all of our manufacturing except for the manufacturing of the secret formula for WD-40, which we control very tightly. We found good quality aerosol canners and liquid fillers all around the world. We pay attention to quality. We verify and approve all of our outsourced partners. We look at their capabilities and capacities.

EL. Because WD-40 is such a popular brand, was it hard to introduce other brands?

GR. Yes, that gets back to my statement about this not being an easy company to change. Because the thinking was around one thing, we needed to develop things such as learning moments. We also needed to pay much attention to vision and values that drive our behaviors. We invest so much in the development of our people and education and learning. We are a living learning laboratory here. The biggest barrier to any thing in life is fear. It comes out of people being afraid to make mistakes.

EL. Did management have to go through a transition to change this company around?

GR. Fortunately, since we started this program, we have had some impressive retention numbers here. We look at ourselves more as a tribe rather than a team. Nobody has the right to get in the way of people doing magnificent work. I challenged our management team to rally to this thinking. It is their job to make their people successful. We focus on that. In the book, we took at our entire process of coaching, mentoring, and enabling people. Today, many middle management people in the backroom make the decisions that drive how the day-to-day organization functions. We need to include these people in the issues and ask them to help management solve problems. People at the helm should not be afraid to say, 'I don't know.' I say this all of the time. That is why I surround myself with smart people.

EL. How do people articulate the value they provide to the company?

GR. It gets down to a giving people the feeling of doing meaningful work. At WD-40, we say we are in the memories business. We strive to create positive lasting memories with our customers, our end users, our employees, people, our shareholders, and our partners.

Elizabeth Ferrarini is a technology writer from Boston, MA. Reach her at elizabethferrarini@yahoo.com.

What does the Apple's computer mouse, Oral-B toothbrush for children and Palm V handheld organizer have in common with each other?  Each company designed its respective product with the help of engineers from IDEO, one of the most recognized global design firms.  Since 1991, IDEO has helped to design more than 3,000 new products and to reinvent many established Fortune 500 companies.

IDEO's name has become synonymous with innovation. BusinessWeek has ranked IDEO in the top 25 most innovative companies in the U.S. Meanwhile, The Wall Street Journal dubbed IDEO's office, Imagination Playground. The company has become the subject of two books: The Art of Innovation and The Ten Faces of Innovation.

Collaboration among IDEO's clients and myriad of engineers who specialize in discipline ranging from human factors to interaction designs has played a critical factor in the company's success. Doug Solomon, IDEO chief technology officer says, "Because we are not content experts about the thing the clients come to us about, we need to learn from them and their colleagues, and them share this information with our colleagues." In fact, Solomon and his design team devised a collaboration platform, called the Tube, to improve the cross-pollination of ideas across global constituencies.  Employees generated more than 1,000 pages six months after the Tube went live.

Enterpriseleadership.org sat down with Solomon to discuss what design considerations that went into the Tube and what CIOs can learn from them.

EL. What challenges did you face in designing a collaboration platform for a company such as IDEO?

DS. We have employees in eight offices on three continents. In the past, we worked in a distributed manner locally with our colleagues. We might have five or six people meeting face-to-face to discuss a project. Now our global clients expect us to collaborate around the world. We had the challenge of scaling our local work process to how best to collaborate across all of these time zones.

Experiencing something works best when it comes to innovation. As a result, we like to take our clients on observations in the field, such as on shopping visits, or looking at analogous kind of problems and other companies in the ecosystems. We had to find ways to make it easy and convenient for our clients to be part of the process without having them be physical with us the entire time.

We also work with people in the ecosystem who might be affected by some product or service or idea we work on. We use an anthropological type of methodology where we do more than interview them. In fact, we might live with them, go to work with them, or go shopping with them.  Since our projects are so diverse, we never know in advance what kinds of interests and people we want to speak with.

EL. How did apply your experience as an innovation company to the design of your collaboration platform?

DS. We treated ourselves as if we were a client of IDEO. We used our human senses design techniques and methods to observe our environment. We talked to people to understand how they would like to collaboration, but felt it is difficult to do at this point. We looked at the culture within IDEO to understand what would motivate people to share what they knew. We looked at what kinds of technologies we could experiment with and use for system prototypes. We also looked at our business constraints to make sure we could support this initiative.

EL. Can you summarize the concept of the Tube?

DS. We designed the Tube, which is our Intranet, based on the London subway system. It connects all of the people around the company, and provides them with a way to share information with each other. Some parts of our Tube consist of homemade components. We designed a consistent, human interface based on Ruby on Rails and other Web 2.0 technologies. It pulls in information from many of our legacy information systems, such as project management and time cards. We also have third-party tools we have built in. For example a screen sharing tool makes it easier for anyone here to make a presentation to a client or a colleague in another office. You just click on a link and you automatically you will have your screen starting to share with whomever you would like to invite.

EL. What are the various page types that one has available via the Tube?

DS. Our system is built around a number of page types, such as people pages similar to Facebook.  Active Directory pulls in a person's official data, such as phone number, to create the page. People can also describe themselves in anyway they like to pull their official biography. They can turn their bio into a PDF document, click on a link, and mail the bio to a client. We have project pages that have a start date and an end date. If someone enters a new project, then the system will pull in all of the people who have ever worked on that project. The information will include their bios, photos, and email address.  Our digital assets pages pull in all of the different rich media, such as videos, PowerPoint presentations, images, or documents of any sort.

EL. What tagging capabilities do you have in the Tube?

DS. We also have tagging built throughout the system. You can tag every kind of object, such as rich media. You can search on the tags, on the people, and the digital assets. You can easily search them across our entire system. All of these associations are noted. You can easily find who you should talk to about something, in addition to reading about it. We call this feature our knowledge sharing rather than knowledge management.

The data feeds pull in feeds from external sources, such as blogs. You can even push out internal information, provided it is not proprietary, to external blogs. We have very little top down control of the information. Users generate everything except for a very small piece of our home page. Here our internal communication groups tell what is going on within the company. Each project page lists what information you can share with the public and which information must stay in-house.

EL. Do you have separate pages for clients?

DS. We have a page for each client that aggregates all of the projects that we have done for that client. You can easily look and see what we have done in the past. You can even see information about discussions we had had with the client. These pages help us with business development activities.

EL. How are you handling blogs and wikis?

DS. We are on our fifth Wiki system at IDEO. It is simple to use and does much of the work most wikis ask people to do, such as create the navigation. We have more than 15,000 wiki pages. They are the first place where people want to go and to collaborate with their team members around projects and personal interests.

We give everyone a blog when they join the company. They can decide whether or not to use it. We also have many group blogs. We get 100s of postings per month to the blogs. The ethnographic research about ourselves that we learned as an email culture has helped to make our blogs popular. In the past, we have had different types of blog systems. In fact, our blogs went through a cycle of ups and downs. Some people would blogging and then stopped because no one was reading the entries. People would stop looking for the blog. We built a small tool called Feedmail which watches the blog for you. Initially, we subscribe you to all of the blogs. You can unsubscribe to the blogs and custom which ones to watch. Each day it generates a HTML email with the images and a short summary of what is in the blog posting for that day. You can click through and read the entire posting or skim the blogs. In a minute you can see what's new on all of the blogs and decide what you want to read. That is where much of the content of projects comes from.

EL.  Is there email within your collaboration system?

DS. You just click on a link within the system and it opens your email...it is integrated with our email.

EL. Do you made any provision to use the Tube as a repository for company documents?

DS. We have also a tools section within the Tube that allows us to post a variety of different tools, everything from HR forms, such as health benefits and time cards, and screen sharing tools.

EL. How often do you update the Tube?

DS. Our internal development team pushes out a new version of the Tube weekly. Each new version contains bug fixes and new features.

EL. How would the Tube help me to facilitate putting a project team together?

DS. The Tube can help you look at what manpower resources are available to work on a project. If you use a combination of data from our enterprise management system and our time card system, you can see the kind of people who are available for a project within your time frame.

EL. Have you opened up a section of the Tube to your clients and do you plan to expand it?

DS. Yes, already have a custom section of the Tube opened to our clients. They cannot get confidential information about other clients. They, however, can get access to any work that is happening on their project, such as status reports. In fact, we give them access to all of their information in one place. They don't have to search through their email to find the last update on a project or a report that IDEO showed at a presentation.  It allows us to have a very direct link with our clients and share with them the work that is in progress, such as drawings, illustrations, or storyboards. We can even share videos people we interviewed to get information about the project.  Many clients like this way of interacting, but some clients prefer a more conservative way of sharing information, such as email.  The majority of projects with our clients include some external Web-based tool for collaboration.

EL. What can CIOs learn from you folks about collaboration?

DS. Like many companies, when we started looking at collaboration, we first looked at the technology piece, especially the dozens of existing tools. Of course, we wanted to see if we could find something that could meet our needs.  We experimented with all of the Web 2.0 tools such as blogs and wikis, social networking sites, telepresence, and video; conferencing. The more we spoke with other consulting companies about their collaboration tools, such as McKinsey & Company, we found the reason why most of these systems do not  meet the expectations of those who buy them. It does not have to do much with the technology as it does with the social network within an organization that wants to drive more collaboration. You need to understand the organization's culture. What are the rules around collaboration?  Do we really encourage it or discourage? Many companies do not look at the motivations that would really provide some benefit for people to collaborate. Unless it really meets some needs people have, you understand those needs and their rewards, then it turn into a system that people will not use.

You also need to understand the kinds of concepts you want to share. People carry around much passive, not explicit, knowledge of things. That explains why we decided to create links between people. This proved to be a better alternative than creating a knowledge management to suck information out of peoples' heads, put it in a database, and then download it in their heads.

So, the trick consisted of finding the intersection between what motivates people and what is important to the organization. People need to get some benefit from collaborating with the system. Most benefits will vary company by company. It takes a custom system to provide that kind of motivation. People at IDEO really want to express their interests, to share their work, and to be known to other people in the organization. We never told people they must use the system. We designed the system so that it would appeal to people. We then unleashed it, trained people, and watched what happened.

EL. What is the key to designing intuitive interfaces?

DS. Many systems are not designed to be intuitive. We have tried to do things such as eliminate all of the little roadblocks that make it difficult for people to use the system. For example, we made is very similar to use across every part of the Intranet. We use the Active Directory system. You only log on once. You do not need different passwords for blogs or wikis. For example, special wiki language can cause people to stay away from the system. We have a simple editor in our wiki system.

You need to allow people to go where they already are rather forcing them to go to new places. We tried to understand the work processes we have in our collaboration today. We provide ways for people to use the same type of methods but do it in a better more effective. For example, Feedmail brings the blog digest to you via email. Most companies make you go to each blog and search around to find what's new. People waste time searching through dozens of blogs.

We built our system to adapt to changes in the environment. To this end, our collaboration system is a constant work in progress. We always look for new ways to improve it. We have a built in feedback system which people can click on a link and send our team a message. We want to find the functions that people want and overcome any barriers to them using it as fully as possible.

Our innovative process as a company is based on prototype early, and often. We try to get things out as early as possible as we can get feedback from users. We set the expectation that we will need to change things. I recommend that CIOs do that over time.

EL. What has been the payoff from the Tube?

DS. It has helped us to understand how we can improve collaboration and use technology to improve our innovation process. It has also helped us to improve our efficiency and our quality of work. It has helped us to generate more revenue because we have been able to attract new types of project outside of our traditional IDEO community.

Elizabeth M. Ferrarini - She is a technology writer from Boston, Massachusetts. Reach her at elizabethferrrini@yahoo.com.

Why are some major companies good at driving corporate innovation in technology? For some answers to that question, Enterpriseleadership.org turned to Dr. Ron Pierantozzi who built his entire career on driving corporate innovation in a technology-related company and doing research in this area. Before retiring from Air Products, a $10 billion supplier of industrial gases and chemicals, Dr. Pierantozzi was the company's director of business development. He worked on new venture creation and technology transfer. He also served as Air Product's director of technology. Since retiring, Dr. Pierantozzi has been a member of the Radical Innovation Group, a consulting firm that works with global companies to develop their innovation capability. He lectures at the Wharton Business School, and was an executive-in-residence at Rensselaer Polytechnic Institute's Lally School of Business. The holder of 32 U.S. patents, Dr. Pierantozzi co-authored the article, Implementing a Learning Plan to Counter Project Uncertainty, which appeared in Sloan Management Review, January 2008.

Here is what Dr. Ron Pierantozzi had to say:

EL. Can you briefly describe the innovation programs at Air Products?

RP.  We had a couple of different things going on. I worked on the business development team, structured as a separate organization. It reported to the development organization and aligned parallel to the technology organization. We focused on new market entry, new business ventures, and new business starts. We also invested in startup businesses to generate new ideas and new technologies. Likewise, the technology organization had teams focused on developing products and bringing them to market. This organization reported to the office of the CTO. It had a number of different processes in place to develop new opportunities.

EL.  Did both of these organizations have people dedicated to innovation and nothing else?

RP.  In the new business development group, we had between six to 14 people whose only job it was to create new business opportunities for the corporation. They looked primarily outside the existing markets and existing capabilities. They looked to new emerging markets in technology or market trends with the goal of developing ideas around how to create large business opportunities. I managed that group. It would grow depending on how the opportunities grew. We supplemented our permanent staff with consultants. The technology organization was organized the same. We had a corporate research group whose job it was to create new long-term technology options for the company. It was a corporate entity. The funding did not come directly from the business units.

EL.  Can you describe Air Product's corporate innovation program?

RP.  The education program began with the idea for creating new opportunities in the company. The tool sets we had were not appropriate for innovation. These tool sets focused on building incremental new products or reducing the cost or improving the efficiency and productivity of our existing capabilities. We began to bring in educators to help us develop the new tool sets we needed. The process included bringing in people from the Radical Innovation Group. They worked with us on how to identify opportunities in highly uncertain markets, and how do deal with bringing folks from the Wharton Business School to work with us on the discovery-driven planning methodology. As activity grew, we began to formalize this program under the auspices of a quasi Air Products University. Within it, we were already doing things around Six Sigma and project management, and quality. Inside of this, we created the innovation college. Within it, we began to teach classes ranging from creativity to how to develop market opportunities, and assess those opportunities, right up to the execution of new businesses and new startup opportunities. At one point, we had 35 courses in the innovation college ranging from creativity to business execution. I am still involved in teaching some of those classes.

EL.  Can you describe some of the methodology that has come out of the Radical Innovation Group's seven-year innovation project?

RP.  I was involved with this Group for several years. The initial aspect of this Group and its methodologies included tools around planning for uncertainty. Most large companies operate on information culled from their existing businesses or existing experiences. As you look beyond your current technologies and current markets, you see many uncertainties. There are many assumptions that come into our thought processes. With the Group, it initially developed a set of tools that enabled us to manage those uncertainties at the very earliest stages. We called that the learning plan. It has grown not only to a set of tools, but to a set of organizational competencies.

Within the innovation process, the Group can identify the required separate competencies.  For example, discovery incubation acceleration is a competency. It is the discovery of new ideas, and new opportunities. The incubation focuses on formulating them and experimenting with them to get to a reasonable business proposition. Acceleration looks at growing them to a commercially successful entity or business or technology.

You also need a set of competencies that differ from anything else you have in the company. The idea of having a functional capability in innovation included both the competencies, tools, and the career paths for the individuals who work on the innovation processes.

EL.  How do you feel about open innovation communities such as InnoCentive?

RP.  InnoCentive and Nine Sigma are great tools for tapping the minds of the global audience. Companies need to tap into these tools as much as they can. You need to get outside of your own company. Open innovation enables you to do that. Companies not only need to do that, but they need to have their own people spending some of time outside the existing company walls. For example, although Air Products is an industrial gas company, we would have people going to conferences that dealt with IP infrastructure for machine-to-machine services. It presented an emerging market opportunity for using IP to develop decision processes and analytics. We were doing it internally to some extent to run our plant. We wanted to get out and learn how to develop businesses in those kinds of markets.

Open innovation goes beyond using InnoCentive or Nine Sigma. Those two communities are part of open innovation. You need to get the innovators and the business leaders out into new spaces. They need to get outside of their existing business comfort zone and seek more insight from sources such as universities, startup companies, conferences, and emerging markets.

EL.  What is the status of innovation right now in U.S. companies given the economic downturn? Is it something we need to focus more on?

RP.  Companies are focusing less on it. Instead, they are working on improving their bottom line in this economy. There is not much top-line growth going on right now. I should clarify that I have not done a rigorous statistical analysis to know the extent of this. Obviously, there are exceptions to this comment. In reducing that cost, companies have eliminated much of the longer-term focus around innovation and new products. Instead, they have focused their new products organizations around products that have more reactive market payback within 12 months to 18 months. Because of the economic downturn, companies have cut their long-range research and development. In the long term, this could potentially prove disastrous not only for companies but for innovation in this country. That is a big issue.

The question: Should they be doing more innovation? As an outsider from the Wharton Business School, I find it easy to say 'Yes' they should be doing it. Senior managers have a difficult time deciding to spend money on things that will not happen for three- to five-years, especially when the company is struggling to get in the black. Some of the forward-looking companies have started to increase their innovation efforts. I see some light at the end of this tunnel.

EL.  What takeaways would you give CIOs and CTOs about innovation? 

RP.  If you talk to CTOs about building some functional capability around engineering or chemistry, they would know exactly what to do. They would put in place a set of guidelines, strategies, and hire the right type of people to drive the right type of programs. They need to do the same thing around innovation and around longer-term growth opportunities. We keep treating innovation as though it is something similar to what we do today. We just need to take a couple of bright people and put them in jobs to go after innovation. The reality is the way CTOs and CIOs need to think about this. Innovation is a function, but it is a different function than what we do today.

The Radical Innovation Innovation's study at Rensselaer looked at the importance of innovation as a function. This function, according to the study, needs to include a set of tools, a set of capabilities, and a group of people who see a career path in this. If you do not have these things in place, then it will be difficult to carry out innovation. You might take a one-off kind of innovation occasionally. For the most part, sustaining this type of innovation would be extremely difficult. My simple one line message to CTOs and CIOs is this: Start thinking of innovation as a function and do exactly what you have done in your other functions to build the capability.

EL.  At the Wharton Business School, you teach a course in entrepreneurship and innovation. What was the 2009 response to this course?

RP.  I teach on the West Coast in Silicon Valley in San Francisco. The course has always been popular. This year we have the highest number of students that we have ever had. At one point, enrollment was nearly doubled what we had in 2008. Is that due to the economy and everyone thinking they want to start their own business? Is it due to us doing a good job teaching the course? I cannot explain the reason for the spike in enrollments. My class a year ago was probably the most successful class I ever had. Six of our business plans made it to the semi-finals of the Wharton business plan competition. We see many young engineers and managers of large companies (this latter audience populates our executive MBA program) thinking they want to go off on their own. Perhaps, they do not see the growth and career opportunities in their own companies.

EL. What made the two different innovation departments at Air Products successful?

RP.  It was many things. We got people out of their comfort zone. We had a group of people who went out and found new things. We had a group of managers who spent time on it. We used to meet with the senior management team monthly to talk about ideas. Senior management put an enormous amount of effort into helping and thinking about the growth opportunity. It turned into the growth board comprised of the senior-level executives who controlled 90 percent of the resources of the company. They focused on what new opportunities we looked at, and what we did. This type of thinking and support contributed much to the success. Then we taught people how to do things. We learned that you could not use the existing type of Six Sigma stage gate tools to drive long-term innovation. You needed a set of different tools, like the learning plan methodologies and discovery driven growth.

EL.  Did you work with the CIO at Air Products?

RP.  Yes. We launched a couple of business initiatives that dealt with IP capabilities because the company was into this type of monitoring. The CIO sat on our advisory board. He understood the needs that we had from an IP perspective. He was a manager looking outside the company. At the time, our IT organization primarily focused on infrastructure support, which is what most IT organization in large companies concentrate on. We needed to go outside and get some development capabilities. He was a strong supporter of the innovation capabilities as they related to IT.

EL.  Are you seeing much innovation from U.S. companies?

RP.  Emerging companies right now face the challenge of lack of capital. I am on the board of two emerging energy companies that have a fair amount of innovation going on, but they have found it difficult to raise money from the venture capital community.  A decade ago, VCs had no qualms about funding companies. During 2008 and 2009, VC cut back substantially on funding new ventures.

Meanwhile, large companies face a similar dilemma around funding new ventures. They, instead, look for more sure bets rather than taking a risk. Everyone wants to put their money in a sure bet. Sure bets often do not turn into big new things. People like Andy Grove are not convinced they will see the next Google or Microsoft. I do not think there is anything like that out there now. Today's good technologies will not turn into major innovations that will drive the next generation of growth in this country.

EL.  Where do you think the next information technology innovation will come from?

RP.  We now have the Internet and tremendous IP capability. This entire issue of smart services will probably be the next area of innovation. Much of the runway there can create a tremendous amount of value, particularly in the energy space, as well as other industries. Many service layers need to be on top of this capability to drive not only Web 2.0 kind of stuff, and social networking, but real industrial-type analytics that allow us to drive smart services and decision-making. This one area of the IP space still has opportunity.

Elizabeth M. Ferrarini is a technology writer from Boston, MA. Reach her at elizabethferrarini@yahoo.com

In 1974 when Dave Abney joined UPS part-time as a college student loading and unloading packages, the brown uniformed UPS drivers and the clean brown UPS package cars represented the company's brand.  Managers and executives used slide rulers and calculators to handle many office functions. Many things at UPS have changed in 35 years. Abney has held many positions throughout his UPS career, from division manager in New Jersey to his current position as chief operating officer. The brown uniformed UPS drivers and the clean UPS package cars still play a key liaison role between customers and UPS. Today, conserving vehicle fuel and driver time have been critical issues for UPS. Meanwhile, UPS' initial public offering in 1999 gave the company funds to grow from being a shipping company to becoming a $50 billion global transportation and provider of third-party logistics services. UPS has leveraged its customer data, and a customer-based network of integrated systems to offer new package delivery services, to make drivers more efficient, and to pursue new business opportunities.

Enterpriseleadership.org recently sat down with Abney to discuss the UPS' disciplined approach to operational efficiencies, technology spending, and new business development.  Here is what he had to say:

EL. What are you doing to make your drivers more productive and your vehicles more energy efficient?

DA. What you mentioned has been very central to our operational excellence. We have been demonstrating it since 1907. Because fuel is a big part of our fleet and our costs, we have always focused on conservation. Any mile that we do not drive saves fuel and does not cause a carbon footprint. We have probably got as good at that as just about anyone.

Our network is very different from some of our competitors. We do not send different drivers out to take care of air, ground, and residential. We handle everything on one network. This method provides much visible efficiency. Some small initiatives also contribute to our efficiency. For example, we have received much publicity for our no-left-turn policy. In fact, some of my neighbors and friends have asked me how they can get to work without making left turns. Going right or what we call loop dispatch is an efficient way to run our network. It also saves much time especially in heavy traffic. You may think a couple of left turns would not make a difference. On the other hand, if we talk about 90,000 people driving their vehicles all day long, those fuel savings and time savings translate to meaningful numbers.

Our package flow technology allows us to dispatch in efficient ways. Before the packages ever get to an operation, we know what is coming in and can dispatch based on that. In the past without technology, we had to wait until we got the packages, split the packages up, and them assign them to the different package cars. If things did not make sense, we often had to make changes at the last minute and just move packages around. Our package flow technology alone has allowed us to save 30 million miles, three million gallons of fuels, and 32,000 tons of carbon emissions.

You may have read about our alternative fuel vehicles. By the end of this year, we will have more than 2,200. We have traveled almost 200 million miles with these vehicles. We are using all different types of technologies -- hydraulic hybrids that operate off the breaking power. We also have electric hybrid cells. I cannot say if that one particular example fits all conditions at this point. The hydraulic hybrid seems to work well in metro areas where you have many stops and starts. We look at different technologies for the different situations.

EL. What technology do you use to map no-left-turn routes for drivers?

DA. We have installed telematics technology on about 10,000 of our vehicles. Our no-left-turn technology and our package flow technology consist of knowing where the packages are going. Drivers do not use a GPS device that alerts then to the route as they drive. Instead, each driver follows a pre-designated route based on our technology. The dynamic dispatch we are working on would use GPS with factors that might happen mid-route.

EL. Are you leveraging technology to make your customers operate more efficiently?

DA. Absolutely! Until 1998, we focused on running the tightest ship in the shipping industry. We were the best at small package delivery. We still are. As the world started to change, we decided to overhaul our business strategy to enable global commerce to meet our customers' needs. World trade was starting to development, emerging countries were starting to play roles in those trade lanes, and supply chains were becoming longer and more complex.

The paperless invoice is a prime example of how technology has affected our customers. It allows them to ship packages around the world, -- across country borders  -- without having to complete the complex paper invoices, or keep dozens of duplicate copies. In the past, if those copies got lost of if you did not provide complete information, your package could gets held up at the borders. The electronic capture of information eliminates many errors. Because we transmit the information so the country receives it in advance of the package, we provide a smoother transition across the country border.

EL. Is UPS getting into new businesses that will complement package delivery?

DA. Yes, that is part of our new strategy in enabling global commerce.  Since 1998, many things have happened. The funds from our 1999 initial public offering have allowed us to invest in more than 40 acquisitions. Some of these acquisitions have given us brokerage capabilities, such as freight forwarding. For example, we acquired one of the largest third-party logistic providers in the world. It can start from the very beginning of the process by helping customer to manage their transportation needs. It can manage raw goods coming in-bound, and run the warehouse, taking care of distribution.  It could also move all of a customer's transportation needs either through our network or via a shipping line. While we do not own any ships, we would provide all of the information along with the packages to the shipping lines.

EL. Would you assemble a product and then package it for shipping, say to retail stores?

DA. Yes, we do the packaging of computers and other product lines. We even go one step further for our customers. UPS employees repair Toshiba laptops. If your Toshiba laptop malfunctions while you are traveling, you can drop it off at a UPS facility or a UPS store. We will pack it up and send it to our hub in Louisville, Kentucky, where we will do the repairs. We will then pack it and deliver it to your hotel. No one other than a UPS employee touches your laptop during the entire process which takes anywhere from 28 hours to 48 hours, depending on the repair.

EL. What impact has the economic downturn had on some of these businesses?

DA. The economic downtown has affected our customers in some industries, such as retail, more than others. We live in a time that many of us have never seen before. We have a decline in industrial production and a reduction in consumer spending. Like many businesses, we need to make good decisions, not only about reducing costs, but also about how to grow our revenue in these tough times. Being a 103-year old company has some advantages. We know how to manage during uncertain times. We survived the depression, several world wars, and countless economic cycles. We know how to manage change. We have just to make sure we feel very comfortable about it.

We have a responsibility to maintain our financial soundness. We are in a great position to do that. We have to be prudent to hold ourselves accountable. We feel that there are opportunities out there. We know we can take advantage of those opportunities. If we see a business that would answer the needs of our customers, we can invest in it.

EL. Your company leverages much technology to be in different businesses.  and to be really efficient and agile. How do you make technology investment decisions?

DA. First, we measure everything. We use this information to decide where we need to implement technology and where we need to invest in the business. We constantly monitor trade lane information, and the needs of our customers. We then look to see where we need to make investments and answer the needs of our customers. We invest about one billion dollar a year in technology. We look at what the project will cost, what type of a return we might get, and how it will take us to get a return on that investment.

EL. What is the governance process for looking at these capital investments?

DA. We have a governance process around any major investment that we would do. It starts with our management committee, which is the way we manage our business. The committee consists of the CEO, me, and about nine other people. Our people do the analysis to see if the investment would give us the return we need and if it will answer our customers' needs. We then decide whether or not to approve the investment.

EL. How often do you review your business strategy?

DA. It is absolutely an ongoing process. At one time, you could look at our strategy three to five years out. That's not good enough today because the world keeps changing. Our executive level strategy steering committee meets monthly to talk about where we are, where we need to go, how we see the markets changing, and how do we react to those changes.

EL. Have you invested additional dollars in analytics?

DA. We have invested in analytics to ensure sure that we have the capacity to analyze much information, and that we can funnel it to where we need to make our improvements. Analytics is something we have been doing since I got here 35 years old. Back then we used slide rulers and calculators.

EL. Do you have a formal methodology for looking at capital investments in technology?

DA. Yes. We have a committee that meets monthly. We have a set format for how we look at this information, especially how it shows the rate of return, the cost of the project, and how quickly we think we can get a return on that investment. Key members of the committee include the Dave Barnes, the CIO, our CFO, me, and nine other executives. Because our offices are near each other, we are constantly talking to each other. Each morning we go to breakfast together to make sure we catch up with each other. We do the same thing at lunch. We have weekly and monthly meetings.

EL. Do you have a committee that handles acquisitions?

DA. We have a group that looks at mergers and acquisitions. It has close ties to our strategy group. We first look at what the acquisition would provide. If we think it has potential, we then look at what synergies the acquisition would provide us.

EL. What is your feeling about using social media to get closer to your customers?

DA. Our way for communicating back and forth with customers has been through our drivers. They function as ambassadors to our company and our customers. As the company has grown, we started to branch out and advertise. For years, our best form of advertisement was our uniformed drivers and a clean package car vehicle that appeared in front a customer's door every day. We have tailored more and more programs for the Internet. We have expanded our interaction with customers to include social media. We are experimenting with things like twitter. We like being able to interact directly and quickly with customers. Social media will also give us much customer service intelligence about how we can do better job. Again, social media is fertile ground for us.

Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

In today's economy, risk is undesirable and growth has never been more necessary. Meanwhile, the long fingers of the economic slowdown have created even more obstacles to innovation-led growth than in more normal times. On the other hand, many companies botch growth and innovation. They treat untested assumptions as facts, get trapped into spending on big flops, and apply the same business-as-usual management style that works for their core business, but doesn't make sense for new venture.

Pioneered by Rita McGrath, an associate professor at Columbia University Graduate School of Business, Discovery-Driven Growth (DDG) re-invents the pursuit of growth and innovation from the ground up. The goal is to produce maximum results with minimum risk. This new approach allows executive management to convert assumptions into knowledge as a strategic venture unfolds. It also provides a roadmap for how organizations can create a more flexible business architecture. In fact, companies, such as amazon.com, DuPont, and Hewlett-Packard, have put DDG to the test time and time again. Graduate business schools, such as Columbia, Harvard, and Wharton, include DDG in their curriculum.

Enterpriseleadership.org sat down with Professor Gunther McGrath to discuss her new book, Discovery-Driven Growth (Harvard Business Press).

Bio

Rita Gunther McGrath is an associate professor at the Columbia University Graduate School of Business. Her consulting work focuses on executive teams of Global Fortune 500 organizations that struggle with growth and innovation. Her clients include Air Products and Chemicals, Microsoft, and Nokia. She has authored the following books: The Entrepreneurial Mindset: Strategies for Continuously Creating Opportunity in an Age of Uncertainty, and MarketBusters: 40 Strategic Moves That Drive Exceptional Growth. Before pursuing an academic career, McGrath was a director of information technology. She is a director of the Strategic Management Society.

EL. Why do companies need DDG more now than ever?

RGM. Because existing approaches to corporate growth and planning don't work, especially in this market, DDG is an innovation idea whose time has come. Many companies have gotten themselves into risky, huge down-side situations. If these companies had checked their assumptions, they could've redirected their business to reflect the changing realities around them. They didn't do this. DDG forces you to undertake a much-disciplined process. You document your assumptions, contain your risks to know the factors in each step along the way, and then you plan and re-evaluate what you do as you go along.

EL. Can you go to the specific steps in the DDG process?

RGM. DDG comprises five different disciplines. First, you need to make sure you know what success would look like. Bad planning happens when people don't know what the outside looks like. Second, benchmarking can help you ensure that you don't fool yourself and you use the right metrics. Third, you need to figure out operationally what you'd have to do to make a business or an initiative work. Fourth, you must document your key assumptions so you can go back and check them. The last step, which is the most critical, focuses on planning around key checkpoints.

I like to use the metaphor of climbing a new mountain for the first time. You know you want to get to the top, but you don't know the entire route to the summit. To be safe, you can plan for the next bend in the road. DDG encourages people to think about the cost and the risk they're taking to get to the next step. When you get there, you stop, you look at your assumptions, and you decide if it's worth going forward. Is this journey the right one or should you redirect it? This process forces you to be very realistic and risk conscious as you go through your planning step. It doesn't constrain people too much.

EL. What are the challenges of DDG?

RGM. Because people don't remember assumptions, we have a hard time processing them. To this end, you can't go back and compare what you're thinking with what's actually happening. You don't have the memory to do that. You need to document your assumptions. Meanwhile, people have a tendency to accept information that confirms what they believe to be true. We reject information that we thought was true when someone questions it. People continue to go on with this thinking even though new information suggests things aren't working out very well at all. DDG helps people to stop and to think, and to be more objective about the assumptions they make.

EL. Given the economic downturn, are you seeing a push to adopt DDG?

RGM. Yes. My phone is ringing off the hook. People are saying they need to apply this thinking to their main business. They're realizing that their core businesses aren't as safe and predictable as they thought.

Can give me examples of companies that have successfully used DDG?

IDEO, the design firm, used DDG to create business models for experiences. It can show how a particular user experience, say in a shopping center, will generate certain kinds of financial outcomes. This helps IDEO model the business implications of its services.

DDG is guiding Sealed Air’s move into China. This manufacturer of bubble wrap takes one step, learns from it, and accepts its failures before it takes the next step. FieldAir is doing this very systematically.

Air Products and Chemicals developed remote technology to monitor its plants. The company used DDG to determine that it needed to embed its technology into communications systems or systems technologies. As a result, Air Products and Chemicals partnered with uninterruptible power supply vendors to create this routing. The product, which came out in August 2008, has been well received.

EL. What role does the chief information officer play in DDG?

RGM. If you want to get a new venture going, you usually have to write a business plan, which includes a net present value calculation. The plan has a set of tasks that you want to accomplish with their accompanying dates. If the venture gets approved, you get the money all at once. You're under pressure to continue with the project all the way through. Using DDG, you set the money aside, and release it on a timed basis as you meet major milestones. You function the same way a venture capture firm dispenses funds.

CIOs can allow a company to do these techniques, or they can actually get in the way. For example, using DDG, CIOs might require the applications development team to go through critical checkpoints with end users before any code gets written. This process creates a much tighter integration between IT and the users. It also allows CIOs to reorient their systems development. On the other hand, caretaker CIOs will have a hard time adopting DDG. These CIOs need to plan every detail of each project. Because these CIOs get stuck in the mud about procedures, they can't stop, and redirect their assumptions in high uncertainty situations. If you're products are based on technology, you don't want an inflexible CIO who refuses to redirect or reorient as the project unfolds. It can be huge barrier to learning.

EL. What changes do you need to make in your governance structure to move forward with for DDG?

RGM. It's a subtle change in assessment. In a typical governance structure, good managers meet their commitments and do what they promise. This scenario doesn't work in environments with huge amounts of uncertainty. In these situations, you need to be looking for criteria to support management decisions. Here's what you might say: 'I don't need you necessarily to be right. On the other hand if you're wrong, I need to know that you failed intelligently. I want to know that you really kept an eye on the risks all the way through.'

Boards often impose acceptance behavior for governance. In high uncertainty situation, boards can send companies down the wrong track, by insisting everything has to be rolled out as expected.

EL. Your book has a chapter on business architecture. Does DDG include other architectures, such as the strategic architecture or the technology architecture?

RGM. Yes, you have to include these other architecture. Let me comment on that. Many people feel unclear about what it actually means. A business needs to have two elements -- the unit of business, which you charge your customers for, and key drivers, which accompany processes that enable the company to deliver effectively that unit of business to paying customers. Your technology infrastructure enables you to support the delivery of the unit of business to a particular set of customers. DDG forces people to think very carefully about their unit of business and work backward into what the supporting architectures are.

EL. Can you give me an example of a company that has locked itself into a rigid business architecture and will have a hard time adopting a more flexible one?

RGM. SAP, for example, has locked itself to a business architecture that assumes customers will buy premises-based ERP software, not software as a service (SaaS). SAP customers pay an upfront technology licensing fee, and a yearly maintenance and upgrade fee. The latter fees are a percentage of the licensing fee. SAP currently sells to sophisticated, centralized procurement departments of large, global organizations. To broaden its customer base, SAP is now trying to sell a small business version of its product to CEOs of companies that have between 100 employees to 500 employees. These CEOs usually aren't technology savvy people, and don't understand the ins and outs of the SAP product.

EL. How does SAP's business model effect customers that have based their enterprise technology architecture on SAP?

RGM. SAP gets all of its profits upfront because its enterprise customers bear all of their costs for the software upfront. Meanwhile, because SAP is hard to change once its adopted, many companies make it their technology architecture. Today, companies need a technology architecture that enables them to get into new opportunities quickly, and to exit them immediately when they're no longer attractive. SAP might hinder companies that continually want to update and to adapt their business model. That's why many companies have started to move their key applications to the SaaS delivery model.

EL. Can you explain how SaaS might provide companies with more flexible business and technology architectures?

RGM. Pioneered by NetSuite, Peoplesoft, and Salesforce.com, SaaS changes the profit and cost flow between a company and its customers. It can offer SAP customers and potential SAP customers a better pricing model. This model doesn't lock customers into a rigid technology platform. Instead of the high, upfront licensing fee, SaaS has a monthly subscription fee, where customers dole out some cash each month. SaaS has a different business architecture behind it. You pay so much for each person who uses the system, not a big licensing fee for the entire enterprise. SAAS  is easier to communicate to potential customers. It demystifies what the product does, especially the key drivers behind it.

EL. If companies are locked into premises-based enterprise software, what steps can they take to move these applications to SaaS?

RGM. Going forward, large enterprise software companies might pressure their customers to pay higher maintenance fees. Meanwhile, customers probably will resist and will look for third parties that can maintain the software for less. If they don't pay for the upgrades, they just run the basic software. As a result, they can start to carve out pieces of that enterprise system. They can take those pieces to the cloud, making them object based so they have a different type of technology architecture. This gradual process makes it easier for organizations to adapt to the new architecture.

For example, if you don't pay those SAP maintenance fees for five years, you'll save the cost of your original installation. You can use the savings to convert to something that's less expensive, more flexible, and robust.

EL. Once you adopt DDG, what guidelines should you follow for investments in innovation?

RGM. When it comes to innovation, companies should invest in ventures that will take them into the future, or what I call strategic options. They also should look at major enhancements to their core businesses or new core businesses. They need to keep their core business healthy to the extent they can.

The first principle you want to follow includes looking across a portfolio of ventures with different uncertainty models, and managing those ventures proactively. Most companies don't have a good sense about what's in their portfolio. They have a big disconnect between their strategy process, their project process, and their people process. Going forward, you need to make sure your investments have a strategy for growth.

The second principle says you need to develop your own innovation style. A dozen different companies will have a dozen different innovation styles. You need to build systems that are consistent all the way through with your own style for innovation.

EL. Can you explain the different types of innovation styles?

RGM. There are four broad innovation styles: marketplace of ideas, the visionary leader, systematic innovation, and collaborative innovation.

google.com practices the market place of ideas style. Employees spend 10 percent of their time working on innovative things, even if they aren't consistent with the employee's job. Employees share their ideas with peers who provide feedback. The best ideas bubble up to the top. google.com launches the most powerful ideas in the marketplace.

The ideas presented by a visionary leader, such as Steve Jobs of Apple, drive the company's direction. Meanwhile, employees surround the visionary leader with good ideas related to the company's vision. The company operates in a mode of secrecy until the product nears its announcement date.

The systematic innovation style follows a definitive plan or a recipe for innovation initiatives. For example, Procter & Gamble takes an anthropological approach to innovation. P&G's Living It and Working It program sends employees out to study what's going out in customers' homes and offices and then to report on the findings.

The collaborative innovation approach involves growing by partnering with others firm that do similar synergistic things. For example, by leveraging the software Apple's partners brought to the table, Apple created demand for its Iphone.

Any of those approaches can work very well on its own. CEOs and CIOs, however, have to be careful how far they mixed these styles. For example, employees working collaboratively might have a hard time selling their ideas to a visionary leader. The marketplace of ideas style requires that employees have much autonomy and easy access to operational resources. These employees might feel stifled in a collaborative environment where they have to justify resources.

     Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

One of the largest privately held companies in the United States, Day & Zimmermann, which has annual revenues of $2.2 billion, provides government agencies and 60 percent of the Fortune 500 with contingent employees and services in the following areas:  engineering and construction, security, information technology, office administration, architecture, maritime, reprographics, and munitions.

Handling the paperwork to pay 24,000 employees who work for 1,300 customers at 150 worldwide locations can stretch the muscles of most IT departments. However, Anthony J. Bosco, Jr., the CIO and a 28-year veteran of Day & Zimmermann, has managed to outpace his competitors by using technology to automate a lot of employee paperwork, to speed up cost accounting of projects to customers, and to collect monies from customers sooner.  Bosco also spearheaded a system consolidation using SAP, which dramatically reduced overhead and interest costs.  In fact, the Yoh Exchange, a portal Bosco's group built for one of the company's operating businesses, received an Impact Award in 2004 from the America's SAP Users' Group.

Enterpriseleadership.org recently sat down with Bosco to talk about how the e-commerce initiatives have driven the company forward, and how the company has become more agile and innovative.  Here's what he had to say.

EL: Can you describe some of the IT initiatives that are making your company more customer centric?

AJB: In 2003, we built the Yoh Exchange, a SAP-based portal that exploits the entire supply chain and supplier management process.  It allows customers to see what's happening with their existing workforce in terms of time, expense, recording, and approval. It also delivers specific content to the workforce that may be particular to projects they're working on, or the location they're working at. We've been doing well for many years.

We've automated, not only the transaction flow between the customer and us, but us and the management of a number of subsuppliers who provide talent to our customer. We act as a clearinghouse. With one push of a button, we now disseminate information, everything from invoices to talent requisitions to a number of sub suppliers. The subsuppliers can only see their information.  It is from our perspective all within the same portal so the customer can see the activity, and we can see the activity. We've taken the management of the entire contingent workforce out of the email box, and put it in a portal that gives customers end-to-end transparency based on who they are, and where they are in the staffing process.

EL: Can you be more specific about the role of the sub supplier?

AJB: Subsuppliers can be competitors of ours. Large companies have a very diverse and extensive contingent workforce. One of our lines of business manages that contingent workforce on behalf of our customers. About 20 years ago, many companies decided to go with vendor consolidation. The process involves one key vendor entering into contractual relationships with the other suppliers, and thus eliminated the need for customers to deal with many subcontracts and subcontractors. As the managing vendor, we deal directly with all of the administration of the other contingent labor vendors that supply our customers. By negotiating the price, we enable customers to control their spend.

EL: How have you automated the requirements and approval process for getting talent?

AJB: A major customer might have anywhere from a dozen to 50 other staffing companies competing to fill that role. When we first built the Yoh Exchange, we provided a consolidated invoice. However, the requirement process and the approval process were still decentralized. In fact, if a customer got a huge invoice, department managers often argued that a purchase order hadn't been augmented. We enhanced the portal to enter requirements gathering, candidate sourcing, both from our internal database as well as our subsuppliers. We also disseminate the appropriate information back to the individual department managers.

The most important thing is that we put the best people in front of our customers quickly, and we can start evaluating how well our vendors are performing. For example, vendor one provides a customer with three resumes within a day, and each resume meets 90 percent of the customer's requirements. Meanwhile, within two hours, vendor two provides 10 resumes, which meet 20 percent of the requirements. It's obvious who is the better supplier. We track all of those types of statistics so we know who's performing and who is just throwing out resumes to customers.

EL: Can you customize the Yoh Exchange portal for specific customers?

AJB: We can customize the customer's view of the portal to go beyond transaction processing to include services that empower the contingent workforce. For example, we supply contingent security guards for one of the largest petrochemical companies in the world.  Safety is the number one concern of the guards who staff the company's refineries, plants, and office buildings.  The guards use the portal to process all types of OSHA violations and other types of security incidents. Depending on the type of issue and the location, the information flashes in a real time across the dashboard of key security personnel.

In addition to transaction processing information, the NBC portal provides continent workers with content they might need on the job. It could include the signup to visit a particular studio or particular site, or orientation information for a new employee at a specific site. We can push that content out so when that employee goes to the site, he or she knows what to expect.

When NBC was covering the 2004 Olympics, people found the portal to be a good way to communicate with others working at different location. For some engineering and construction companies, we made certain equipment manuals, drawings, and collateral available through the portal. When an employee goes to work at that location, he or she doesn't have to search the Web or to look internally for specific documents they might need.

EL: Where are you getting this information from for the customizing of a customer's portal?

AJB: Some of the information comes from the customers. Some of it comes from work we've done, such as proprietary designs we've built. We might provide links to customer sites for particular collateral that exits. Again, people can find information on their own. If we know the content they need exists, we'll make it available. We believe that employees should have the tools to work more effectively and more successfully.

EL: Does the portal create more revenue for your company?

AJB: We don't typically charge extra for the portal service. It creates more revenue for us because it enables us to differentiate ourselves from our competitors. When you're competing for a job, you need to present good talent that meets the customer's requirements.  We can attract high quality employees who know they can be more successful here than the company down the street.

EL: What changes did you make in IT processes to drive innovation and agility?

AJB: We changed our IT structure from shared services, to decentralized services, back to shared services and now to selective shared services. Because of this process, we've become very mature with a time-tested IT infrastructure. We can retrofit a process very quickly. We can do what is best for our customers or our business during a particular time in the economy or a cycle of a business.

For example, we took the hands-off, forms-based recruiting process and created an online recruiting system where candidates submit their resumes online. As an applicant, you can have an account with us. A manager can see the status of how many jobs have come in, how many candidates have been screened, how many candidates are waiting for interviews, and where we are with background checks or drug screens. We've made this process more transparent.

EL: How are you driving cost out of the organization?

AJB: We don't have a manufacturing system where we can change a process and drive dramatic cost savings. As a service organization, we have to focus on transparency so people act more productive. Our business depends on speed and accuracy of information. We've been able to increase our asset turns by 30 percent where our number of days' sales outstanding has dropped by 35 percent or 40 percent. This decrease has resulted in major economic benefit. By eliminating some departments, we've been able to drive down the cost of our internal processing. We continue to tweak it.

The various improvements we've made have given everyone from business unit managers to project mangers the right kind of organizational transparency into what's happening in the organization. In fact, transparency into everything from an employee-related issue to a supplier matter, not only raises the level of accountability, but it enables us to mitigate issues before they get out of hand.

EL: How do you measure the effectiveness of your organization?

AJB: Our tools and the techniques have helped us to cut the time of customer projects, such as building a refinery. I have a whole set of tools and templates we use. Every internal project has a SharePoint site. We have certain templates we follow. We use project-based tools and techniques that have been around the construction industry for years. All of our projects have critical path methods.

I have a bet with some of our businesses that they can acquire a company similar to us, and we can implement a core ERP system, which goes from core financials to procure, in 60 days.

Our basic business metric is asset turns. We know that our technology enables us to build faster, and to provide more accurate information.  If you're accurate, you'll get paid faster. IT is part of our business strategy. Our IT metrics look at how much money we spend on innovation and front-facing issues versus how much it costs us to operate and keep the lights on. In 2008, we cracked the 55 percent level of how much goes for innovation and front-facing business support of the customer.  I won't be happy until we get to 60 percent. Business transaction processing has nothing to do with keeping the lights on. It's about creating customer value beyond what you think of for IT.

We spend less than one percent of the company's revenue on IT, but we have a 55 percent level of spend for innovation and the like. I challenge my CFO colleague to spend less on financial processing in the organization than I do for IT. We have an internal initiative where we look at process improvement as a way to exploit some of the features in our technology toolset to drive the CFO's cost down. There was a point in time where our costs as a percent of revenue were at par with one another. The CFO's costs have crept up and mine have gone down.

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Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

Mark D. Lutchen knows what it takes to unleash the full potential of IT so that organizations can derive the maximum benefit from it. As the former global CIO at PricewaterhouseCoopers (PwC), one of the largest professional business services firms in the world, Lutchen oversaw an IT organization of more than 2,500 professionals serving more than 120,000 employees in 144 countries. Today, Lutchen is a senior practices partner in PwC's IT Effectiveness Practice, where he helps clients get more value from their IT investments and their IT strategies. In 2004, he wrote Managing IT as a Business - A Survival Guide for CEO's. Many graduate school professors have used his book in MBA courses on IT management. Lutchen says that the basics IT management principles in his book haven't changed much since it was published.

Enterpriseleadership.org recently spoke with Lutchen, for the second time, to discuss what disciplines CIOs must put in place if they want to run IT like a successful company. This is what he had to say:

EL: Why did you write the book in the first place?

ML: I wrote the book because the IT clients I worked with seemed to have similar issues. It became clear that technology wasn't the problem. Instead, it was about managing IT and being disciplined about doing it. If you look at the failures that have occurred, you start to see some of the patterns. People have not instilled within IT the disciplines we use in other parts of the business. If you're a CIO running a billion dollar IT organization or even a half billion IT organization, that's the equivalent of running a business. To this end, you need all of the kinds of things in place for running a business. The book was to put this idea into context.

EL: Why did you decide to title the book as A Survival Guide for CEOs and not CIOs?

ML: The book is really for the C-level executives. I wrote it from a business orientation. If you look at the role of the CIO five years to 10 years from now, you'll find the CIO of a major corporation acting more like a CEO of a business around IT.

Many of the IT books that have come out in the past two years have redefined the CIOs role. That's what I did, except I redefined the CIO role as that of a CEO. I also wanted other people in the business, such as the CFO and the COO, to understand what happens in an IT organization from both the IT and the business side.

EL: Since your book came out, have CIOs become better at developing IT strategies that meld with the overall corporate strategy, as well as the needs of the business units? If not, how can they be doing a better job.

ML: Some of them have been trying to do that. Upfront in the book I address the issue that IT doesn't provide the one process or the one tool to take care of everything. Instead, if you want to do things right, you always need to be working on about 13 or 14 competency areas. All of competencies have to be at the right level for your organization. If you have the world's greatest technology but you don't have the ability to motivate your skilled people, then you're going to have an imbalance, and the technology won't perform the way you want it to. On the other hand, you have the technology spirit and the people with the right skills but you don't interact with the business units effectively. In other words, you don't set goals, prioritize things, or make sure you're linked to the business strategy. If this's the case, the technology you have, the way you put it in, and the skills you use to support it might be completely off target for the business units.

EL: So how do you get all of this to balance?

ML: People have had a desire to do it, but they have to work hard at it. In some cases, it requires ripping up what's there, and dramatically changing the culture. It also requires having a good base of quality and credible data, visibility, and transparency around what's going in the IT organization. You really need to look at the how the IT spend and IT performance support the business. People tend to work on parts of the problem. They really need a program to work on all the parts. It never ends. People have tried to make progress. It's been expensive.

The tighter money becomes, people begin to say that they don't need the disciplines they put in place, and thus start to cut costs here. For example, they might say no to rolling out an IT dashboard because they have the perception that it won't add value. Of course, an IT dashboard will add value much the same way, as you need a CFO to run a billion dollar business.

EL: What are some of the effective criteria processes C-level executives, including CIOs, and other business leaders or other constituents should consider in deciding on the mix of IT investments?

ML: People can't look at these as just IT investments or just IT spend. The companies making good progress have begun to understand that other than certain specific things, such as infrastructure, these aren't IT projects any more, but business projects with strong IT components. You need to approach things differently by saying that we, as an organization, need to decide on the mix of the total investments. Before you start making any decisions, you need a set of criteria for determining if the investment is a mandatory item, or if it is a regulatory item. Once you get that criteria agreed with by the business unit, then you can start to define the IT components, and to lay them in place. You also need to have a business measurement.

If the project has many business components and one IT component, then the business should unit own the entire project. Once you have structured the process and have agreed upon the criteria, you can start to have an intelligent discussion about which business projects must take priority over others. This discussion drives the platform of the portfolio of business projects you're going to do, and defines the IT components needed to support each project.

When the project gets going, you need to have a way to assess the results and to measure the benefits. At certain intervals, you need to stop and to make sure you can meet the targeted benefits. You can't wait a year or two years to see if there is any benefit. If you can't reach the first set of benefits in the first time interval, why would you let the project go forward?

EL: Where are companies falling short in finding IT dollars to invest in areas such as innovation?

ML: Companies that understand the activities what drive their costs, and make the effort to reduce unnecessary costs are more prone to have a mix of IT investments. On the other hand, if a company understands that 90 percent of its spend is tied up in legacy systems, then it's playing a zero sum game by having to spend money on maintaining these systems. If the company doesn't shift gears, it's costs will increase. You can't stand still. The older your systems get, the more they cost to maintain. People view this spend as a water faucet that they can turn off and turn on as needed. This saw tooth approach adds to the capital expenditure.

You need to understand how you spend capital to reduce costs to keep rolling forward. That translates to how do I free up cash if I'm not going to get any more money to be able to fund innovation? It gets back to perception. Do you have a group that just focuses on innovative things or innovative uses of technology for the rest of the organization or within anyone business unit? Many people view that has a luxury. It's a necessity. You don't always have to be on the leading edge, but you have to be on the edge of certain things, and to understand how these things would help the business to do something better, or to help the IT organization lowers its costs.

EL: What are the hot IT areas your clients are investing?

ML: This's an area where I'm going to tread lightly on. If you think back over the last couple of years, everyone was pushing service-oriented architecture. It was perceived as a major breakthrough in Web-based delivery of IT services. I haven't seen much about that lately. I lot of it was hype as opposed to the basic set of blocking and tackling you need when a new technology comes out.

Several years ago, we saw many companies heavily investing in customer relationship management systems. CRM had the same problems ERP had. People charged ahead and put in very large, global standardized systems to accomplish some objective. Many of these systems failed because of other factors. Some people, still to this day. haven't dealt with certain infrastructure issues that could remove large pockets of costs and make things more efficient. Using a tool as simple as virtual asset management, you can cut costs and improve efficiencies. If you don't understand your asset base, how are you going to understand how to move within a different direction?

Within the business itself, the use of things on the Internet and the Web have reached a certain plateau. We're doing more wireless activities. To this end, we need to have better wireless security and a better way to keep these wireless systems running.

EL: How should a company go about seeing if it can benefit from a new technology?

ML: You need to work with parties that help you to experiment with new technologies so you can evaluate how you can apply them in your organization.

Let me turn back the clock to 1995 when PriceWaterhouseCoopers had 100,000 of PCs and 1,000s of employees traveling all over the world each day. These people used to connect to the office via phone lines to get their Lotus Notes email. Broadband didn't exist at the time. Their calls would go from a server to a modem bank in the office. This service was expensive and the security wasn't where it should've been.

We decided to look at how we could provide connectivity that wouldn't drop calls, would require just a local call or a local connection, and would provide more security. We essentially laid the groundwork for our virtual private network. We asked MCI if it would work with us to develop the VPN. We needed a partner to help us to keep our costs in line. Our need to reduce the costs and to improve the security drove this innovation.

Today VPN is a staple. There are many other things like that out there. We couldn't have done that ourselves. The communications companies didn't understand what we were talking about when we first started speaking with them. You have to work collaboratively with other parties to get some of that innovation going.

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Author: Elizabeth M. Ferrarini - She is a technology writer from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.