Put simply, there are not enough Hospital beds for those patients who need them.

However,  the solution that is often put forward - building new hospitals, commissioning new wards, creating new beds is not the answer.

In fact, there is already a powerful disruptive solution in existence that would do a ‘good enough job’ and more than likely provide better outcomes for patients, medical staff, insurance companies and the Government. But first some background.

We are expecting our third child. Now when my wife finally gives birth, she will do so in a hospital. And it will be in a hospital that she will be receiving some of the very best care available. However, within a day or two, providing she is recovering well, she will be asked to leave hospital. That’s right, only two or three days after a major medical undertaking, she will be asked to leave the well resourced hospital with its highly skilled team of nurses and doctors, its technology and equipment.

Why? Because at this stage of her care she is a liability. At this stage, while her medical condition is significant, the powers that be, both medical and financial have decided that she no longer requires critical care.

So where is she going? is she going Home? No.

A Disruptive solution to non-critical care

What happens next is a reflection of some wonderfully logical and yet, disruptive, thinking. More than likely what will happen is this. A well appointed luxury car will drive her from her maternity hospital to the Park Hyatt, yes, the one and the same, where she will rest - with babe - in the care of the nursing team there.

Amazing!

Apparently, it makes  more financial sense to care for a  mother and new baby in a five star hotel than it does in a Maternity hospital!

The fact that this makes sense (and money) to the private health insurer, her medical team, the hospital and to the hotel is a testament to the power of this solution. And let me tell you, it sure makes sense to my darling wife!

Segmenting Patients

This solution to the maternity bed issue raises a fascinating learning for the broader healthcare industry.

Firstly, it calls for a clear need to re-segment patients not by their medical condition, their age or even their healthcare provider, it requires a segmentation of their needs, or specifically, the “job” that they are trying to get done. (for more information on the Jobs approach visit the Cogentum site). Do they require intensive care, do they require hospital based care, do they require respite care, do they require monitoring? Understanding the needs that drive the selection of an appropriate solution in granular detail will allow us to determine the most logical solution. And the solution may not necessarily be a bed in a hospital ward.

As the ageing population begins to put more and more strain on the healthcare system, the need for new and more innovative solutions grows. What the maternity solution suggests is that patients requiring respite or monitoring may not be best served through a hospital solution.

If a hotel can provide a better, or at least a good enough solution at a comparable cost to the private or public health insurer, then it may well be a better solution for society and the economy as a whole. The Flow on advantage is that this solution would also free up hospital beds for those who actually need hospital based care.

By changing the focus of the problem from one of healthcare to one of “room optimisation” we have been able to solve multiple problems owned by multiple stakeholders. The Hospital, as mentioned, would have more beds available for acute care patients. The Hotel has close to full occupancy which improves its ROA and the insurer is minimising payments and delivering better health outcomes.

Finally, we noted a couple of years ago that International Hotel chain Accor reached an agreement to take over the running of the Qantas club lounge’s at major airports. This was a brilliant example of leveraging core capabilities (hospitality) into new markets. If this is working and producing the required returns, one wonders how long it will be before hotel groups start to take a good long look at the healthcare industry.

As the travel industry starts to feel the impact of a slowing economy and tightening discretionary spending - both tourism and commercial - the healthcare system could well provide the recession proof income stream the Hospitality industry will be crying out for.

Michael R Johnson

The classic Australian rock group Hoodoo Guru’s song from the mid 80’s pretty much captures the nature of the current financial crisis. As a result of this mayhem there is now little doubt that we are about to enter a major down turn. How far down, no one really knows. But what we do know is that there is always a bottom. And as sure as winter is followed by spring, there is an up. So the question arises how to survive winter?

There are some key drivers that management teams should adhere to during what will be a trying period.

Keep your customer close. How well do you know your customer? Pretty well? Well think again. Customers will be redefining ‘value’, redefining what they see as ’service’ and totally changing what they believe is essential versus ‘good enough’. In recessionary periods, Companies who understand their customers and clearly understand how they define value will steal considerable market share from those who persist with delivering the same old thing.

Growing organically. That big M&A? Probably off the agenda. As is the IPO and the trade sale to the multinational. While there is a strong argument that companies will now be viewed as being priced at levels that reflect once in a generation opportunity, management teams will need to demonstrate their ability to grow in these new times. What we have just experienced firsthand is that anyone can do well on a rising tide, but true management ability and growth strategy shines in both ebb and falling tides. That requires not only organic growth experience - ie. sales and marketing nous - but the hard evidence to support the development of these new strategies.

The Disruptive business model. Knowing your customer is key. Knowing how to deliver what they want and only what they want could be the difference between success and failure. We suspect that this will result in many businesses taking a long hard look at their existing business models and costs structure to see where thing can be done better and more efficiently. However, this course of action requires clear evidence not gut feel, as one sure fire way to hasten any demise is to start cutting costs without understanding what your customer actually wants. Once again, the key is clearly understanding your customer and building a model around this knowledge.

It’s all about the channel. How good is your relationship with your channel? Well there’s a fair chance you are about to find out. Channel loyalty and efficiency is a critical part of a successful go-to-market strategy. No more so than in times when working capital is under pressure. Ensuring you have the ability to price, deliver and support your channel will be vital.

Product Portfolio Management. Is your product a luxury brand or a functional one? Now is a good time to assess the ‘real’ value that your products deliver. If they are weighted towards luxury then it could be time to readjust in favour of those that offer functionality and comfort as consumers seek value and product optimization rather than opulence and ‘one trick’ products. As this new market begins to be redefined by climate change and liquidity, value for money and increased functionality will be vital to driving revenue growth.

Evidence rules. Exactly how many downturns have we all lived through? How many like this? All that experience, intuition and gut feel. Well, that is all they are. When it comes to developing new strategies to grow and invest, in high risk, unknown markets, evidence will provide you with the confidence you need to proceed. Evidence and insight of what customers want will ultimately allow you to steer a steady and less risky course to growth.

Priced on Value. 24 months interest free? May want to look at your pricing strategy again as consumers re-evaluate price and pricing deals to gain a full understanding of the liability that comes with many pricing offers. One of the biggest winners potentially from the current crisis will be ‘transparent pricing’ models. Models that allow what consumers believe is realistic pricing to occur. As a result, expect to see an increase in EBay trade and also the growth of ‘true markets’ where producers meet sellers.

Cocooning. The Home is my castle once more. During periods of uncertainty, anything that can be seen to reinforce family values, security, is welcomed. Once again, how well do you know your customers? Enjoyment and happiness will come from friends and family not from material possessions and discretionary spending. Anything that helps your customers to connect and identify with their community and their friends will resonate.

What do you stand for? What is your company, your brand, your solution all about? Can it be articulated? Clearly? Is it relevant to the changing market? It is critical that when a market changes by this degree, that a company and the management team recognize the need to change as well. Assuming that your offer, mission and vision from the previous six months is still relevant to customers whose needs have now radically changed, is arrogant at best, fatal at worst.

Flexibility. Finally, no one knows for sure where this will all end up. But one thing is for sure. The world does go on. Markets, societies and economies change, sometimes radically. Just look at the change Russia has gone through in the last 20 years. Ensuring your organization and your people can recognize change, synthesize the implication of change and deal with it personally and organizationally is vital. There is a long list of those who failed to navigate this road successfully; however, there is an even more impressive list of companies who emerged out of previous periods of chaos to be household names today.

What? I hear you say? Burn him at the stake the heretic!

But it’s true, not all great ideas have a market!

The failure of retractable syringes to gain a foothold is a case in point. One company we know of developed a great piece of technology that allowed the needle to be drawn back into the shaft of the syringe after use. This simple and brilliant design prevented the syringe from inadvertently injuring people.

A great idea. And a wonderful solution to what would seem to be a very important and unmet need.

However, the concept failed to take off and late last year the company was de-listed from the stock exchange. Sadly this is not an unfamiliar story. The question is why?

The Jobs framework

Through our use of the Jobs based framework( based on Clayton Christensen’s seminal work) we can provide a potential analysis and hypothesis as to what went wrong. And please note, this is a hypothesis only.

Our guess is that the developers of this product focused primarily on one major and obvious problem - preventing ‘injury by a needle after it has being used’

By doing so they ignored other potential opportunities and also what could have  been potentially ‘fatal flaws’.

In this case the jobs framework seeks to understand all the things people who use syringes, and people who deal with syringes are trying to get done when getting rid of a used syringe. Importantly, not only does it identify what they are trying to get done, it also allows people to prioritise these jobs in terms of how well they are being solved.

Now the hypothesis of the technologists in our syringe example, is that getting rid of the needle was all important. However, storing the used syringes safely, removing used syringes from sight, keeping the cost of a syringe low are all other important jobs that need to be solved at the same time. By providing only one part of the solution the retractable syringe developer opened themselves up to classic disruption and that is exactly what happened.

An existing player in the disposal market launched a Smart yellow box. It has a hole in the top, you plonk the sharp in and done.

By placing them everywhere they made disposal easier. By offering to empty them they extended their existing business model into a new market. By solving the problem with a box, they defeated the new technology because there was simply no need for it.

While the retractable syringe was a great idea, there was simply no market for it.

Classic disruption.

This is wonderful example of disruptive innovation. Low end technology doing a good enough job. The problem simply did not warrant a high end solution. The power of the jobs framework is that it allows you to unpack the ‘unmet’ needs of a market at a granular level, but with an objective perspective.

Michael R Johnson

Well since then we have noted two interesting developments.

1. Frucor - the owner of V - one of the leading energy drinks in the Australian/NZ market has ‘apparently’ been put on the market by its owners - Groupe Danone of France. While this represents an interesting move by Danone in this market, watching what CCA does in response will be fascinating. Sometimes, no matter how big and well resourced you are, innovation won’t work. The initial Mother product fell squarely into this category. So now that one of the leading brands is ‘on the market’, it would have to cross the mind of the CCA board that here is a far easier way to avoid the pitfalls of the Mother experience and bring to bear CCA’s capabilities and resources.
2. Now having said that, before they spend further funds entering what seems to be a very attractive market, they might want to keep an eye on a recent study that indicated “that just one can of the popular stimulant energy drink Red Bull can increase the risk of heart attack or stroke, even in young people,“

This throws a real spin on the whole energy drinks market opportunity. Rather than unpacking a multi-million dollar revenue stream, players could be opening up a real can of worms. Strategically responding to issues like this will test even the greatest management team. Ensuring they manage their brand to ensure long term growth and protect their enormous brand equity will be vital.

When assessing innovation risk, ie. the risk profile of an innovation project, and in particular the risk surrounding any new technology, not everything is or can be known. Having a process that at the bare minimum identifies what you don’t know ( with apologies to Donald Rumsfeld) is absolutely vital.

Michael R Johnson

Why? Well at its core lies the concept that the web has killed the 80:20 rule. (Hope that’s accurate please let me know if it isn’t!).

What does that mean? Well it means that with the case of Amazon, there will always be someone, from somewhere wanting to buy a book, also, there is enough of these one off purchases to actually make up more than the peak profits from the the best seller list. In other words there is more value in the tail of the bell curve that there is in the peak. Startling!

Now why the Long Tail should be an imperative part of your knowledge base is that Angus and Robertson right here in Australia have just launched their print on demand service.  For the first time, books that are out of print and are hard to get are no longer that!

This is a great piece of dirsuptive innovation and has long been mooted, so it is good to see that it has finally arrived.

What makes this fascinating is that we are starting to see other areas where a similar attack on the traditional supply chain is starting to get traction. There is about to be a massive revolution in 3D printing that will totally change the way manufacturers, retailers and designers work. And significantly, the impact will revolutionise working capital.

Michael R Johnson

However, the resources boom may well start to become something that is increasingly up close and personal for many consumers. And excitingly, it may also start to be a key driver of innovation.

Why? Well, rising commodity prices are starting to have a very real effect on the price of energy. Aluminium production in particular is being dealt a ‘perfect storm’. The Aluminium industry is currently experiencing rising commodity prices and rising energy prices, and as a result - sharply increasing costs of production. (energy accounts for about 45 per cent of the cost of producing finished aluminium).

So what effect does this have on consumers? Well if you like your Coke and Fanta - you’re in for less of it if a recent article in the Financial Times is anything to go by.

In a nut shell Coca-Cola is looking at shrinking the size of its coke and fanta cans (from 355ml to 330ml) in Hong Kong due to the soaring price of aluminium. John Sicher, analyst at drinks newsletter Beverage Digest, said: “In a number of markets the big beverage companies are starting to look at different package sizes…both Coke and Pepsi are testing different package sizes in the US.” Sicher went on to say that many companies were experimenting with “slightly smaller bottles” and that changes in packaging were likely to be “a major theme” for the soft-drinks industry over the next few years.

Now there’s an interesting twist on the scarce resource story! Further weight to this has been added to this scarcity theory in a recent report coming out of Europe which would indicate that rising energy prices are starting to hit many manufacturers across multiple industries.

Rising prices, while greeted with despair by Consumers, Government and the media can often provide the perfect environment for disruptive innovation.

As prices rise and markets start to slow, consumers increasingly look for solutions that do the job, not necessarily to perfection, but well enough.

We suspect that over the last 10 years there has been a wholesale over-engineering of many solutions across multiple industries. Further, we are starting to see evidence that supports the hypothesis that the new resource scarce environment could well provide a once in a generation opportunity for new players to create powerful new disruptive models. So while Aluminium was the material of the late 20th century - used across multiple markets  for a multiple of jobs, an opportunity now exists for new materials, new skills, new business models that are able to ‘get the job’ done in a cheaper and more ‘total cost’ effective manner.

Rising resource prices, climate change economics, the emergence of Asian economic power, the ageing population, true globalisation and web 2.0. These are all just some of the increasingly powerful trends and forces at work that we believe are creating a ‘perfect storm’ for innovation.

Within this maelstrom of change, organisations will come under increasing pressure to pick a strategy, a technology, an idea to guide them to new growth. As we have blogged previously this is a method fraught with danger. However, organisations can put in place risk mitigation strategies to ensure that rather than being a victim of change, they become one of the new Gates, Jobs, Brinns and Page’s of the world.

Simply put, the upside of getting it right is now too compelling to ignore

Michael R Johnson

A new solution will always redefine the problem. F.W Johnson

This is a wonderful quote. And for the sake of disclosure I can tell you that the Johnson referred to here is sadly no relation to yours truly. He was one of the Johnson & Johnson brothers.

The reason we think this is such a powerful thought is that it emphasises the importance of context. Often, in the world of innovation, context is often overlooked.

Some methodologies in the innovation world use a combination of importance and satisfaction to identify a gap. And it is this gap which dictates where opportunity for value creation lies. No problems here, we strongly support the use of gap analysis of varying types.

The problem with these types of approaches is that it can lead organisations to assume:

1. that everyone you spoke to had the same knowledge of all available solutions, and
2. that they all lead exactly the same sort of lives.

We believe that while they may all share a similar level of satisfaction about an existing solution, their individual context will dramatically shape how they rate the importance of a need. Additionally, their exposure to new information about a need and the solutions available will dramatically change their context and hence, the level of importance they prescribe to a need.

As a result, these types of approaches need to be used carefully. While they can be used to identify broad themes, identifying specific needs in such a way without undertaking any analysis of context can result in disaster. The greatest example of this would be the Sony mini disc. A wonderful piece of innovation that put more tracks onto a smaller disc and which was rendered completely and totally irrelevant when the Mp3 player arrived. The introduction of the MP3 player has completely altered the problem ensuring that importance was extremely time specific.

Context is always changing. Ensuring that you understand the impact of context on your opportunity identification process is vital to delivering ‘real’ opportunities.

Michael R Johnson

However, I think the CEO should be torching the consulting firm who convinced them it was the right thing to do, not the marketing department.
It surprises me that everyone, even Coke, is buying the “it failed because of the taste” line.
It is so not about Taste. Never was.
The reason Mother failed was because the Strategy was wrong. Nothing more to it. Nothing to do with advertising, or taste or anything else for that matter.

But let’s go through the rationale that got them there to begin with.

Coke, having been scarred by the recent failures such as Lift Plus, Burn, Sprite recharge and Vault sought the help of a large US consulting firm.

As this firm is prone to do, they then presented Coke with a pretty compelling argument.
Energy drinks market are growing at 25% plus per year. They are not a player but need to be.
Recent failures have all tried the me too approach - More energy, more buzz etc etc. All cliched strategies and all owned lock stock and barrel by Red Bull and V.

So rightly, they went looking for a new strategy, one that would clearly differentiate Coke in a crowded market.
Using the deductive powers for which they are so well known, the Consulting firm hit upon the mega trend toward ‘natural’ ingredients.
The thinking that was recommended was that Coke’s new energy drink should combine the trend for energy drinks with the trend towards natural ingredients. The result?
Mother, the only 100% natural energy drink.

This was the positioning and the strategy. And it has nothing to do with taste.

It was just plain wrong. Why?
Simple.
Target audience? Males 18-24. Usage? Nightclubs and social activities.
Anyone who has anything to do with this market would know that natural ingredients would rate down the bottom within this context.

So in essence they couldn’t have picked a worse strategy. 100% natural. Good lord.
The only chance Mother had and probably still has is if they went the 100% chemical strategy.
Then their advertising campaign may well have had some cut through with the audience.
Mother. It’s just not natural

It’s an interesting perspective and one that we have touched on in previous blogs. At the end of the day we see innovation as being about action. So like Berkun, we believe that innovation is a term that can often lead to more confusion and procrastination, rather than clarity and new and valuable outcomes.

If Innovation is all about developing something of value, then realistically the only, and I mean the ONLY, way of developing something of value is ensuring that you actually have a problem that is worth solving to begin with. If it’s not a problem, then there is hardly a need for solution, let alone allocating resources in people, time and money in the development of a solution.

So with that in mind, the common practice of getting groups of people in a room to brainstorm wildly hoping they’ll come up with something of value really is lunacy. And one thing’s for sure, it is definitely not innovation.

Why on earth organisations have this dangerous addiction to focusing on developing ideas, brainstorming and idea fest’s as their innovation process is beyond me. While they may have some HR benefit, this lack of commercial focus clearly explains why innovation fails to grab the attention of the CEO and CFO in many organisations.

If innovation is about creating great things - things of value - and that create value for customers, stakeholders and shareholders, then innovation means an awful lot more than just ideas and invention. It has to start with a clear and granular definition of the problem.

Michael R Johnson

However, only 12 months ago GPS devices such as the Navman, etc. were the next big thing. But not everything is looking so cherry ripe for GPS devices now days.

GPS has both been celebrated and potentially commoditised by the new iphone. By bundling it in and adding is as App, Apple have disrupted the Satnav GPS device makers with a ‘good enough’ piece of technology.

This is classic Apple innovation strategy - take what has already been proven as an attractive solution on its own and bundle it into a great piece of design. So while the 3G iphone doesn’t offer the top level specs of a real GPS device, it offers a solution that is ‘good enough’ and also provides access to a truly innovative piece of software in the form of Loopt.

In little than 3 years, GPS navigtaion devices have come and, we now suspect, are going, as the mobile phone becomes the all in one device and continues to cannibliase other anciallary markets.

So what impact will this have on Navigation device makers? We suspect not necessarily a good one. It is quite possible that GPS device will face the same fate as the digital camera- being a victim of disruptive innovation

Michael R Johnson