Cutter Summit 2007: Innovation and Risk Entrepreneurship

In progress

A by-the-bullets summary of Bob Charette's keynote "Innovation and Risk Entrepreneurship: Learning How to Profit from Risk" and the associated panel discussion at the Cutter Summit 2007.

Keynote bullets

• To be innovative you have to have really good decision processes.
• Innovation has been a buzz word in that last three years.
• Cites Robert Hanson (whom he calls really controversial but really, really smart): "The innovations that matter most are the millions of small changes we constantly make to our billions of daily procedures and arrangements."
• Cites Michael Schrage: "It's not what innovators innovate, it's what customers want."
• Cites Adam Smith: "Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view."
• Cites J. B. Say
• Cites Ludwig von Mises
• Cites Joseph Schumpeter
• Cites Frank Knight
• Cites Peter Drucker
• Cites Milton Friedman
• Cites himself: "The exchange of goods and services is an exchange of risk and opportunity."
• New York telephone book had to limit the names of plumbers to no more than six A's at the beginning.
• (He offers to provide reference for his list of three choices: 1. Industrial efficiency, 2. Network services, and 3. Knowledge intensive.
• A decision has not been made unless we have commited some resources that we cannot call back without some cost.
• Cites Rockwell Collins founder Arthur Collins: "I want to employ methods which are capable of giving performance greater than is necessary for the needs of the moment."
• Notes today's news about Microsoft, AT&T and software patents. This could be a huge change in the risk environment around patents.
• Walks us through four distinct stages in the history of Collins Radio Company and Rockwell Collins.
  1. The rise of Arthur Collins:
     • 1930s: Collins Radio Company
     • 1950s diversification
     • 1960s move into the digital age. Plays the "one giant leap for mankind quote" and notes that it was made over a Collins radio. (Doesn't note that the words got mixed up, which would have muted his point but is kinda funny.)
     • 1970s purchase by Rockwell International
  2. The fall of Arthur Collins:
     • Overinvested in created the wondrous C-System for communications & computing convergence
     • Ross Perot threatened to buy the company, which forced a hard look at the financials
     • William Rockwell bought Arthur Collins out
     • So What Happened?
       • Too Far Ahead of Customers
       • Heroic Hubris
       • Violated Own Principles
       • Overwhelming Complexity
       • Better Became Enemy of Good Enough
  3. Rentrenchment after the fall:
     • Didn't make many staffing changes; only two people left when Collins did.
     • Created a "engineer's paradise"
     • Successful for a time, but...
     • Cloaked in Virtue
       • Loss of Major Contract
       • Technical Problems in Two Major Programs
       • Engineering Arrogance
       • Lack of Process Discipline
       • Technology Changes
       • Lack of R&D Focus/ROI (although lots of R&D investment)
       • Ignorance of Business Risk. The feeling was that if you solved an engineering problem you solved a financial problem.
  4. New Disciplines, linked by a huge overhaul of their risk management (which is when our speaker, Bob Charette, was brought in)
     • Compressed 40 financial systems into one (SAP)

Plays Tower of Power's "What is Hip?"

Plug for his the book (out in July 2007): Decisions Empowerment

Panelists

Bob Charette	Lou Mazzucchelli	Bart Perkins	Maria Pardee

Panel bullets

• "You can't innovate your way out of a forest fire."
• An interesting (to me) example of innovation: The BT Home Hub - BT's home network management system.
  • BT was at risk of not being significant
  • Took the approach of opening up the network to allow their consumers to get to the services they need.
  • Realized that not all innovation comes from within BP, so the key is to enable the connections between their customers and the innovation providers.
  • Tom DeMarco notes that this is a different BT from the one that used to have their customers arrested for using savings tricks on cross-Atlantic calls. (Need a link for this; it sounds funny.)
• Discussion of Lou's CASE tool project. (Are they talking about Cadre Technologies?)
  • Found its success, unexpectedly, in government work where the tool allowed adherence to (an acquisition?) process.
• Ways that Bart manages risk when investing in companies:
  • Does the entrepreneur have personal wealth tied up in the company? (Got to have skin in the game.)
  • Will the entrepreneur be reasonable when it comes to ceding control when necessary?
  • Does the business plan make sense? (Entrepreneurs are optimistic by nature.)
• Lou: Skin cells versus neurons. You slough skin cells all the time and that's healthy, but you don't want to lose neurons. That's how Web 2.0, for example, will fall out.
• On HP:
  • Bob: HP said in the 1990s that 90% of their revenues come from products that are less than three years old.
  • Lou: The problem with HP is that they carved off the agile part and left behind something that wasn't recognizable as HP.
• The problem of innovation at all companies.
  • Bob asks how many people feel that they can take a we-must-change-180-degrees message all the way to the top of the company? (I was one of only two that raised hands and Bob noted that we both own our own companies. Hee.)
  • Lou says that it's got to start at the top, citing the example of Apple radically ditching most of its product line as they were figuring things out (which eventually meant the creation of the iMac).
• Question: Is crisis required for change?
  • Bob has never seen a company seriously take on risk management unless it could see the noose.
• Maria: The key risk mitigator is agile software development. Very hard to do because finance and marketeers aren't comfortable
• Risk management as a daily decision-making process.
• Lou gives example of (faxman?), the billion dollar project that would have allowed consumers to easily sent faxes through a local (UPS?) office. On time, on budget. Failed because, by the time it was available, Japan was shipping affordable fax machines.
• Bob: Good decisions don't mean good outcomes. (Oh, I love that one!)
• JP asks: Are we creating problems by ensuring that projects don't fail? It's rare that we'll take projects that are good projects that nonetheless deserve do die and will actually kill that.
  • Example of Iridium: Why didn't the project planners spot the lack of the available market?
  • Lou: When the potential market becomes smaller than the cost of development, shoot that sucker!
• Concerning the advice to carry extra capabilities and resources. For this most profound, unknowable risk, what do you do?
  • Bob's short answer: Spend a little money.
  • Bob's longer answer: You've got to be able to name the thing. And (important!) you need to be able to change the name!
  • Lou: The Boy Scouts have it. "Be prepared."
  • Maria: Agile development and flexible enterprise architecture.
• Two suggestions. 1) The gold rush metaphor is dangerous. You can see the bones of the businesses that provided the coal miners. Having lived through Katrina, I can say not "Let's look at all the causes" but "let's look at all the outcomes". The event might be a hurricane or an atomic bomb, but the outcome is the same.
  • Bart: After Katrina, the CIO of the ARC realized they weren't going to be able to reach people and he called a huge meeting of suppliers. By Saturday were able to . The lesson was, be prepared. Tell them the objectives and let them figure out how to respond. ARC came under fire. Truth is they aren't allowed to come in unless they're asked to come in. They were told, Don't come you're not welcome. In Raleigh and other areas.
• Question cites (get this from Christine Davis. Sales turbulence was highest in (?). Assertion 1, IT matters. Assertion 2, the risk is that if you are in a high IT industry and you're not agile you have tremendous risks. So the slower you are the higher your risk.
  • Bart: Lesson from the startups: Fail fast. Keep the resources limited.
• Audience member says: In American companies you're not allowed to fail.
  • Maria: Allow for safe failure. I have a regular meeting to applaud failure and you have to come to my meeting with something that's failed or something you've cut off.
  • Tom cautions the panel not to mistake that for a question; says it's a statement and that it's true.
  • Lou: As the CEO you want someone who's had some scar tissues and who has failed.