2008 Innovation Lecture by Tristram Carfrae

While searching information for a blog post, I found a really interesting lecture "The Art & Practice of Engineering in a Digital World" presented by Tristram Carfrae in "Warren Centre 2008 Innovation Lecture" session which was held in Australia in June, 2008. Tristram Carfrae received Innovation Heroes Award 2008 for outstanding Australian innovations in engineering technology.

Tristram Carfrae, a structural engineer and Principal at Arup Australasia, is known for challenging established ways and exploring better solutions, and for the design of award winning buildings. He is regarded internationally as a leading designer of sporting stadia and lightweight long-span structures.Tristram is behind the design of The Water Cube - Beijing’s National Aquatics Centre for the 2008 Olympics. He also boasts an impressive portfolio of facilities created for the 2000 Sydney Olympics, including the RAS Exhibition Halls, the Dunc Gray Velodrome and the Olympic Tennis Centre. In 2001 Mr Carfrae was recognised as Australian Professional Engineer of the Year by the Institution of Engineers Australia. Carfrae is also an adjunct professor in the School of Built Environment at the University of New South Wales, Australia.

2008 Innovation Lecture
"The Art & Practice of Engineering in a Digital World"
http://www.warren.usyd.edu.au/il_intro.html

Enjoy!

LUSH - Driving forces & Why?

Lush Fresh Handmade Comestics, a UK-based producer and marketer of ethical beauty products with around 500 stores worldwide, had effectively differentiated itself from its competitors through its strong ethical stance, products and packaging, and the way in which it conducted its business (Purkayastha, 2008). We are going to discuss about the internal and external sources of innovation for Lush, based on the Innovation case seminar several weeks ago.

Constantine sold all his rights on C&W products to Body Shop for £6 million and invested the money in Cosmetics to Go, a mail order catalogue of beauty products (CTG). However, CTG was not as successful as expected. He went bankrupt with a large debt. Constantine and his team then set up a new venture called Cosmetic House with £14,000. With a small amount of money, they improvised with irregular tools in Constantine’s kitchen to produce cosmetics. The first natural handmade products of Cosmetic House came into view in a creative way. The unexpected CTG failure was an important source of the innovative production – improvised cosmetics.

Constantine, with a strong ethical standpoint with long-standing commitment to eco-friendly natural products, anti-animal testing, and fair and ethical trade, has been the main driver of innovation at Lush. He successfully drove the message downwards to his staff, committed employees who share their founders’ passion for the values promoted by Lush brand. A superior leadership strategy motivates people to do more, dream more and learn more. Constantine and his team have the strong desire for growth. They are altogether making the innovation to occur.

One driver of innovation is the customers themselves. According to Gary Hamel – the world's leading expert on business strategy, “Every industry on the planet is being reinvented from the customer backwards. Companies need to bring as much innovation to the demand chain as they brought to the supply chain.” (Kirkpatrick & Hamel, 2004). Lush has implemented the same strategy. The name ‘Lush’ came from a customer in Edinburgh as a result of the company competition to find a name. The customers have been continually involved in Lush product development. Lush’s fanatics, called ‘Lushies’, participate in lively discussions on company’s forum, speak their minds, propose new products, vote on alternatives and suggest names such as "smitten," "whoosh," "aurora" to inspire the cosmeticians to create new products. (Conley, 2005).

Public opinions and customer demands are key drivers. People were becoming aware of the need to protect the environment and increasingly expressing the value they attribute to environmental protection through shopping behavior. They understood the impact of packaging in terms of the environment and their responsibilities to diminish the amount of waste. The ideas of ecological and social responsibility have become more and more important. That was the key factor for Constantine to drive his business with an innovative strategy that met customer and public demands: environmentally friendly packaging.

Competition is one of the external sources for innovation. With strong competition from famous cosmetic brands (Body Shop, Origins – Estée Lauder, Sephona – Louis Vuitton), Lush spent many efforts and resources on innovation initiatives with its own creative team led by Mo, Constantine’s wife. It drove the market by offering innovative products and training the customers how to use them. Lush differentiated itself from its competitors by innovative products, superior customer service, unconventional marketing approach and uncompromising ethical stance.

The regulatory environment also has a strong influence on Lush innovation. Constantine saw “climate changes” as an opportunity and made the necessary innovations ahead of the legislation changes. Before selling C&W to Body Shop, he once got into an argument with Roddick when she decided to replace unbreakable glass containers with plastic containers that could not be recycled. Lush products have minimal packaging or no packaging at all. The “green” packaging is one of the most considerable strategies of Lush. Lush is passionate about the environment and promotes campaigns that encourage environmentally friendly behaviors. In mid July 2007, in a campaign, the brave shop workers educated passers-by on the devastating environmental impact of packaged goods sold in cosmetic shops, supermarkets, and other retailers.

Climate change has generated a huge range of environmental policies and legislation at global and national levels. Packaging Regulations issued in 2003 (Exhibit VII) have supported Lush’s strategy and given it the competitive advantage with existing ‘environmentally friendly’ packaging.

In early days, the high cost of packaging cosmetic products made Lush think of a new resolution. The need was obvious, and the creative team then came up with ”no packaging” or ”minimal packaging” solution. This approach allowed Lush to save money and spend more money on high quality ingredients.

Why innovation? Beckeman, our guest lecturer, stated that one of the main reasons was to create competitive advantage. Michael Porter identified two types of strategies used by companies to obtain competitive advantage: low cost and differentiation (Porter, 1980). Low cost is based on increasing efficiency and cost reduction. In early days, Lush decided on no packaging or minimal packaging because of the high cost of packaging cosmetic products. The money saved could be utilized to put high quality ingredients. Lush was successful in differentiating from its competitors through strong ethical stance, innovative products, “green” packaging and in-store experience. Environment related investments can become sources of competitive advantage (Bonifant, Arnold & Long, 1995). Waddock and Bodwell also mentioned that responsible environmental management can provide a solid basis for competitive advantage, especially for early movers (2004). Lush is very keen on environmental issues by aiming at reducing unnecessary packaging and protecting the environment. Lush does have its competitive advantages over its competitors.

In the next post, I’m going to talk about Lush’s main competitor - The Body Shop: How Anita Roddick started her business and how innovation it was.

References

Beckeman, M. “Innovation within the packaging industry”

Bonifant, B., Arnold M. & Long F. (1995). Gaining competitive advantage through environmental investments. Business Horizons 38/4: 37-47.

Conley, L. (2005). How Lush Cleans Up. Retrieved October 28, 2008 from http://www.fastcompany.com/magazine/96/lush-cosmetics-fasttake.html

Kirkpatrick, D. & Hamel, G (2004, September 6), Innovation Do's and Don'ts, FORTUNE Magazine. Retrieved October 28, 2008 from http://money.cnn.com/magazines/fortune/fortune_archive/2004/09/06/380347/index.htm

Porter, M. (1980). Competitive Strategy: Techniques for analyzing industries and competitors, The Free Press, New York, NY.

Ethics – Key to leadership success

Ethics is about good and evil, right and wrong, and of duty and obligation in human conduct; and how we reason and make choices about them (Hicks, R.). Ethical leadership plays a major role in creation of an entrepreneurial team. Northouse (2007) suggested that ethical leadership is founded on respect, service, justice, honesty and community. Ethical leaders treat other people’s decisions, ideas and values with respect; allow other to be themselves with creative desires. The leaders listen to them attentively, empathize with them and are tolerant of opposite opinions. Furthermore, the leaders place people’s benefits ahead of their own, foster others’ visions and integrate all of them to contribute to a common goal. They have a responsibility to attend to others and be a service to them (Northouse, 2007).

It is said about Robbie Hardy, president of Chapel Hill-based IntraSoft and North Carolina’s Entrepreneur of the Year 1997 by Business Leader magazine, that “She knows what people can do best and empowers them to make the most of their talents." Her colleague confirms, "She gets true satisfaction from helping staff and associates reach higher and perform better. She knows what she does best and what she doesn't, and enthusiastically shares responsibility and power." Hardy’s ethical leadership is evidenced by the fact that she set up a superior entrepreneurial team; and the original CI Technologies (CIT) team stayed together for CI Partners (CIP) and has reformulated itself for Intrasoft (Lester, 1998).

With respect, support, trust and encouragement from leaders, subordinates can feel competent about their work and many innovative ideas come into world without fear for failure. Justice and honesty are also important characteristics of leaders. Leaders keep issue of fairness in mind when making decisions. They do not lie nor do they tell the truth in a destructive way.
Respect, support, honesty and justice are extremely substantial in entrepreneurial teams as they are the key ingredients in developing trust and cooperative relationships between leaders and subordinates which are very important to a successful enterprise process.

Beside their own and followers’ objectives, ethical leaders need to take into account the community’s goals. Leaders have to be sensitive to the world in which they operate. They pay attention to how the firm will affect the community, society and environment. What leaders and their subordinates contribute to community may become sources of competitive advantage, one of the vital drivers for innovative team growth and development. Lush Cosmetics is a typical example. Constantine, founder of Lush, has strong ethical stance of anti-animal testing, “green” packaging (minimal / no packaging) which give Lush the competitive advantage, and help to differentiate Lush from its competitors (Purkayastha, 2008).

In conclusion, the best leaders should exhibit their ethics in their leadership style and actions. Ethics is considered as a secret of leadership success.
Let me leave you with words from Guy Kawasaki, a managing director of Garage Technology Ventures, an early-stage venture capital firm and a columnist for Entrepreneur Magazine: “Given a choice, most people would rather work for an ethical company” – under an ethical leadership (Perry, 2004).


References:

Hicks, R. Ethics and Leadership. Retrieved 2008-11-15 from http://level2.cap.gov/documents/Ethics_and_Leadership_Brief.pdf

Lester, M. C. (1998). 1997 Top Gun Enterpreneur of the Year. Business Leader Magazine. Retrieved on October 31, 2008 from http://www.businessleadermagazine.com/Index.aspx?page=ui.article&PID=7707

Perry, D. (2004). Ethics, Leadership and Success. Retrieved 2008-11-15 from
http://www.perrymartel.com/PDFs/Ethics%20Leadership%20and%20Success.pdf

Purkayastha, D. (2008). Sustainable Packaging Practices at Lush Fresh Handmade Cosmetics. ICFAI Center for Management Research.

Financial Crisis and Entrepreneurs

Most of the world is experiencing a financial crisis of historic proportions. Without question, the crisis will not be over in the short time and the international consequences will be deep and lasting. We all have been stressed by that economic downturn. And via communication channels, we easily realize that the credit crisis has hit small business owners particularly hard.

How can smal business owners cope with the crisis? They should not panic, and try to focus on the solutions to help their companies get out of the difficult time. Howard Anderson, management professor at Massachusetts Institute of Technology's Sloan School of Management, says the first and only rule is to make sure the company doesn't run out of money (Klein, 2008). Some suggestions from Scott Shane (2008), Professor of Entrepreneurial Studies at Case Western Reserve University are:
1. Extend less credit to your customers: provide less trade credit to customers and reduce accounts receivable.
2. Borrow from different sources (Community banks which did not get involved in the toxic mortgage mess, peer-to-peer borrowing)
3. Bootstrap, or raise equity
4. Cut your costs: leasing instead of buying; look at consultant who has not added enough value but costs much or employee who has not shaped up despite warnings…

Although it is considered as one of the biggest threats to most of the world, the situation could change depending on how we react to this. During such a crisis, actually, opportunity often arises.

“This is a time of great opportunity,” Bill Warner - founder of Avid Technology and Wildfire, one of the most successful entrepreneurs in America - said. “This is not a pep talk. This is reality.” Warner started his best-known company, digital media hotshot Avid Technologies, in September 1987, a month before the stock market crash of that year (Kirsner, 2008).

There is no better time to start a company for a number of reasons. Because highly paying jobs have disappeared and employment opportunities in general have decreased, previously unaffordable talented people are now available to. Operation cost for a business (rent, equipment…) is reduced. New business opportunities may be created and can be captured by startup companies. Therefore, entrepreneurs should stay motivated and not give up dreams. Do not delay starting company until the economy is stronger because someone may beat you in the market (Finn, 2008)

Economic crisis is a part of life and business. Those who react to a crisis passively wilt after the crisis passes, but those who react proactively and assertively to it ultimately succeed.

I’d like to end my post with a quote from Horace, a Roman lyric poet & satirist:
“Adversity has the effect of eliciting talents, which in prosperous circumstances would have lain dormant.”


References:

Finn, M. (2008, October 1). There is opportunity in crisis. Retrieved November 3, 2008 from http://the4eblog.com/home/2008/10/2/there-is-opportunity-in-crisis.html

Kirsner, S. (2008, October 2). My Notes from Today's Innovation Unconference. MassTLC Innovation2008 unConference. Retrieved October 30, 2008 from
http://www.innoeco.com/2008/10/my-notes-from-todays-innovation.html

Klein, K. (2008, October 8). How Small Business Owners Can Cope with the Crisis. BusinessWeek. Retrieved November 1, 2008 from http://www.businessweek.com/smallbiz/content/oct2008/sb20081010_904259.htm

Shane, S. (2008, October 6). What can Entrepreneurs do to Deal with the Credit Crisis? Retrieved October 30, 2008 from http://www.smallbiztrends.com/2008/10/what-can-entrepreneurs-do-to-deal-with-the-credit-crisis.html

Flat Organizational Structure – Think about it...

In the article – “The heart of entrepreneurship” by Howard H. Stevenson and David E. Gumpert (1985), the authors discuss about the best organizational structure for a venture and come up with a reasonable answer and explanation. The management structure should be flat, decentralized with multiple informal networks, to enhance communication and decision making process, and mobilize people.

In 12Manage – The Executive Fast Track website, it is stated: “A flat organizational structure is an organizational structure that features relatively few layers of managers between the top of the corporation and the normal employees".

This structure supports innovation at the unit level, provides more effective communication processes and increased flexibility to deal with rapidly changing environment. The decision making process is quicker because of less approval levels. Employees have more responsibility, independence and authority. It is unnecessary for supervisory management to step in unless the plan is off track and an effective corrective action is needed.

My previous company applied the flat organizational structure with few management levels. Due to equally distributed authority, all employees built up a small society of mutual trust and support. We communicated openly, shared thoughts and learned from each other. With support, trust and encouragement from managers, many creative ideas come into world without fear for failure. We once failed to deliver a software product to client. After serious meetings about that failure, the manager realized that the goals should have been discussed, deliberated and adjusted based on communication and feedback among all related employees.

According to Robbie Hardy, president of Chapel Hill-based IntraSoft and North Carolina’s Entrepreneur of the Year 1997 by Business Leader magazine, building and maintaining a flat organization is one way to keep the best employees. “Keeping the team and founders in touch is really important in creating an atmosphere that's healthy where people feel they can do anything”. “You can't expect your people to read your mind,” Hardy said. ”And you can't expect them to create innovative solutions if you're not fostering creativity.” IntraSoft developed a progressive and creative environment in which employees are challenged to use cutting-edge technology to create a unique and innovative product line (Lester, 1998)

Harold Leavitt, professor emeritus of organizational behavior at Stanford University and author of Top Down: Why Hierarchies Are Here to Stay and How to Manage Them More Effectively, highlights one inevitable fact about flat organizations: ”The more you flatten, the less you control” (Henricks, 2005). Besides, Ingvar Kamprad, founder of IKEA, emphasizes that Time is an Entrepreneur’s Best Asset (LaBarre, 1999). Therefore, I think an entrepreneur should be aware of the advantages of ”Flat Organizational Structure” and consider to apply it for the purpose of Empowering people and Making faster decisions.


References:

12Manage – The Executive Fast Track. Flat Organizational Structure. Retrieved August 31, 2008, from http://www.12manage.com/description_flat_organizational_structure.html

Henricks, M. (2005). Falling flat? How flat is too flat when it comes to management? You'd better find out before it's too late. Entrepreneur. Retrieved October 31, 2008, from http://findarticles.com/p/articles/mi_m0DTI/is_/ai_n8688088

LaBarre, P. (1999). Success Here's the Inside Story. Retrieved October 31, 2008, from http://www.fastcompany.com/magazine/29/bookpage.html?page=0%2C1

Lester, M. C. (1998). 1997 Top Gun Enterpreneur of the Year. Business Leader Magazine. Retrieved on October 31, 2008 from http://www.businessleadermagazine.com/Index.aspx?page=ui.article&PID=7707

Stevenson, H.H. & Gumpert, D.E. (1985), "The heart of entrepreneurship", Harvard Business Review, Vol. 85 No.2, pp.85-94.

(Photo from http://www.thesykesgrp.com)

US crisis, global crisis and opportunities

Although many observers believed that U.S. recession had begun in the early months of 2008 (Quinn, 2008), US financial crisis was officially triggered by the subprime mortgage collapse on September 7, 2008 and caused shock waves in international markets and a serious influence on economic development. The crisis seems to be a tsunami that hit Europe first then headed for Asia, Latin America and other locations in the world. Global stocks plunged as U.S. crisis spread. Many countries experienced their worst market declines. Dow Jones dropped below 9,000 for first time in five years on October 09, 2008 (Thomasson & Kearns, 2008). In Europe, on October 06, the Paris CAC 40 index finished down 9%, its largest one-day loss ever; London's FTSE 100 dropped 7.85 percent, its largest single-day drop since 1987 (Sullivan & Cody, 2008). The Tokyo stock market suffered its darkest day since 1987 as the Nikkei 225 Stock Average plummeted 11% on October 16, 2008 (Rial & Chua, 2008). Because of steep plunge, some stock exchange markets were even forced to suspend trading, such as Russia’s MICEX exchange, Bucharest Stock Exchange and Indonesia Stock Exchange on October 8, 2008 (Lesova, 2008).

Despite negative effects of the global crisis, there are still opportunities. According to Kishore Mahbubani – the dean of the Lee Kuan Yew School of Public Policy, Singapore's former Ambassador to the United Nations and former President of the United Nations Security Council, the turmoil may turn out to be a source of optimism for Asians. “Actually, the effect of the crisis in the United States could be the opposite. The crisis could in fact lead to a change in the mindset of foreign investors in favor of emerging economies”. Thereby investors would see the benefits of doing more business in Asia.

In his tutoring session for IBC course project, my teacher Sheridan Tatsuno also mentioned that foreign investors will have a tendency to increase the investment in China because of U.S. crisis.

In Latin America - the traditional 'backyard' of the United States, while many others will likely suffer from the crisis, some people are searching for a chance in the gloomy period. Mexican tycoon Carlos Slim, one of the world's richest men, said Latin America's markets can be part of the solution for the northern giant at times of crisis and that they are going to become important for the economy of the United States (Sardon, 2008).

"In the past, developed countries had reserved and financed developing countries, while today developed countries, especially the United States, are being financed with resources from developing countries," Mexican billionaire Slim said. That is why he thinks Latin American and other developing countries could help the U.S. through the crisis (AFP, 2008).

The crisis is seen by James Rooney, chairman and CEO of Market Force Company, as a golden opportunity for Korea to become a force in the global market. He indicated that U.S crisis will cause the slowdown in China's exports to the U.S. and make China to boost its domestic market to offset losses from exports. It will be an advantage for Korean economy (Kim, 2008)

The crisis that swept through the world is not over yet and the international consequences will be deep and lasting. Although the Wall Street crisis is seen as one of the biggest threats to most of the world, the situation could change depending on how we react to this. Entrepreneurs should take advantage of the “bad time” to change the position of their business in national and global economy.

References:

AFP (2008, September 30). Mexican billionaire says China should lead crisis rescue. AFP. Retrieved on October 30, 2008 from http://afp.google.com/article/ALeqM5icguECdnrk259WcIOS_N0phnHkQQ

Kim, J. (2008, October 6). US Crisis Golden Opportunity for Korea. KoreaTimes. Retrieved on October 31, 2008 from http://www.koreatimes.co.kr/www/news/biz/2008/10/123_32224.html

Lesova, P. (2008, October 8). Russian stocks plunge again, trading suspended. MarketWatch. Retrieved on October 30, 2008 from http://www.marketwatch.com/news/story/russian-stocks-plunge-again-trading/story.aspx?guid={648BD3E7-9B66-4E79-9413-16530266BC32}

Quinn, J. (2008, January 7). US recession is already here, warns Merrill. Telegraph. Retrieved October 30, 2008 from
http://www.telegraph.co.uk/finance/economics/2782147/US-recession-is-already-here%2C-warns-Merrill.html

Rial, P. and Chua, K. H. (October 16, 2008). Asian Stocks Tumble on Recession Concerns; Nikkei 225 Plunges. Bloomberg. Retrieved on October 29, 2008 http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aT4Eb5Cdztf0

Sardon, V. (2008, October 3). Latin America sees silver lining in US crisis. TheEarthTimes. Retrieved on October 30, 2008 from http://www.earthtimes.org/articles/show/235200,latin-america-sees-silver-lining-in-us-crisis--feature.html

Sullivan, K. and Cody, E. (2008, October 7). World's Stock Markets Plunge. Washington Post. Retrieved on October 29, 2008 from http://www.washingtonpost.com/wp-dyn/content/article/2008/10/06/AR2008100603167.html

Thomasson, L. and Kearns, J. (2008, October 9). U.S. Stocks Tumble, Sending Dow Below 9,000; GM, Insurers Slide. Bloomberg. Retrieved October 30, 2008 from http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a7Tx3juml8Ys

Growing Pains and Entrepreneurs

To many entrepreneurs, growth is the ultimate success that compensates for their effort and money. It is also a key indicator that goods or services delivered are accepted by the market. Besides, growth simultaneously creates new challenges that the venture has to face. When growth becomes painful, it is a signal of malfunctions in the process of organizational development (Flamholtz, 1990). It is the time when human resources and/or operational structure cannot catch up with the organization’s expansion, and the downfall occurs. At this point, the entrepreneur has three choices: Learn to deal with business growth effectively, sell out, or ignore the problems until the business is forced to close down (Denalli, 1993). The latter two options would most unlikely be selected, the entrepreneur is left with the need to recognize growing pains and manage the growth.

The organizational growing pains mentioned in the article “Growing pains: How to make the transition from an entrepreneurship to a professionally managed firm” (Flamholtz, 1990) are very common and easily experienced by most working people. I would like to introduce an example from my previous experience at an IT company called First Consulting Group (FCG). A web-application project had been estimated to be completed with a team of ten in six months. After three months, it was concluded to need seven more months before the product delivery. Because of underestimation and lack of planning correctly, people were often pushed very hard with heavy workload. Those who worked twelve hours per day began to complain about “overload” and had the feeling that “there is not enough time in the day”. That problem resulted in excessive pressure on employees. To deliver the product on time, the company was forced to hire new people who had to work immediately without adequate training. After the rush, members hired hastily and under pressure would become idle resources. That company spent too much time dealing with short-term crises – “putting out fires”. In late 2007, there was a rumour about the merger of FCG and another company. While senior management had not officially informed, employees experienced a considerable amount of anxiety. They did not understand where the firm was headed and felt insecure about their place in the firm after the merger.

To avoid the problems accompanying rapid growth, organizations must have an infrastructure that will absorb the growth. “Anticipation of bigness” is the term that best describes the effective solution in this case (Hambrick & Crozier, 1985). Those firms must envision themselves as larger; acquire the needed skills and processes before they are actually necessary (Hambrick & Crozier, 1985).

Flamholtz (1990) points out the ten most common organizational growing pains which are only the symptoms of breakdown in the process of organizational development. It is imperative to identify the causes of the malfunction and the solutions, which help entrepreneurs to avoid and deal with growing pains. In highly recommended article “Stumbles and stars in the management of rapid growth”, Hambrick and Crozier (1985) do mention fundamental challenges facing the managers of rapid-growth firms (Instant size, a sense of infallibility, internal turmoil and frenzy, extraordinary resource needs) and how successful firms solve the problems.

Gerber, author of the best-selling The E-Myth: Why Most Businesses Don't Work and What To Do About It (Ballinger Publishing Co.), says: "Business development is crucial, and businesses that don't do it are doomed to fail. High-growth businesses simply fail with a flourish." (Denalli, 1993). A steady rate of growth is necessary to keep everything at a highly stable level. Equipped themselves with theory and reality-based experience, the organizations should stop surviving and start growing with the awareness of the growing pains ahead.


References:

Denalli, J. (1993). Keeping growth under control - managing company growth. Retrieved 2008-10-04 from http://findarticles.com/p/articles/mi_m1154/is_n7_v81/ai_14009418

Flamholtz, E. G. (1990). Growing pains: How to make the transition from an entrepreneurship to a professionally managed firm (pp. 53-72). San Francisco: Jossey-Bass Inc.

Hambrick, D. C., & Crozier, L. M. (1985). Stumblers and stars in the management of rapid growth. Journal of Business Venturing, 1(1), 31-45