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In the movie Field of Dreams, Ray Kinsella hears a voice urging him to build a baseball field – “If you build it, they will come”. Kinsella builds the baseball field and they do come!! Innovators, too, respond to an inner voice. They are confident once customers know about the product they have built, they will flock to buy it. They build a product inventory, hire a sales force, and—no Hollywood ending here—incur costs that can doom the venture.

One serial entrepreneur, Niels, successfully created and sold many an innovatively designed bicycle accessory. His “inner voice” told him the urban bicyclist needed a small, foldable bike to ride from the subway to work. He designed the bike, and showed the prototype at a trade show. The response was enthusiastic. Customers told him they were eager to buy. Niels invested in a thousand bikes, an extensive ad campaign and a national sales force. But, sales were slow to come. Shortly, others made bikes at lower prices and more in tune with customer needs. Today, years later, Niels still owns many of those bikes.

How can innovators better their chances that “they will come”? Mark Leslie, formerly the CEO of Veritas Corp., argues marketers of innovative products must identify the customer and develop a nuanced understanding of that customer’s needs. This calls for frequent communication between the market and the organization. The salesperson is essential to that exchange, as the product moves up what Leslie calls the Sales Learning Curve.

The Sales Learning Curve has three stages. Over time the sales yield (defined as the average annual sales revenue per salesperson) increases. During this Initiation Stage growth in the sales yield is slow as the salesperson gains a deeper understanding of the product and learns which market segments would derive the most value from it. The salesperson devises solutions for customers along with added incentives such as discounts. Towards the end of this stage the sales yield begins to equal the cost per sales person, and the company has acquired a critical mass of customers. Next, during the Transition Stage the learning continues and the product is continuously refined. The initial customers provide references for the product and the pace of sales increases. Finally, as the company moves into the Execution Stage, the sales force size can be increased in direct proportion to sales. When the company achieves sales traction it can primarily hire traditional salespeople, who are assigned territories, price books and marketing collaterals, and are tasked to meet sales quotas.

In the nineties, Pictometry was a struggling engineering company. They did not realize it but they were stuck in the Initiation Stage and needed a salesperson. Richard Kaplan, whose background is in sales, was brought in by investors. His first step was to understand the technology. Based on conversations with customers he suggested changes to the product design. Armed with a solution he called the Geographic Information Services (GIS) departments of several communities but surprisingly there was no interest. Finally, he persuaded one of the GIS department heads to tell him why. Pictometry’s product was in direct competition with the work of the GIS departments. Kaplan was targeting the wrong customer! He then began to target the end-users such as police, fire departments, and assessors. They provided further insights to make the product more valuable. Today Pictometry is hiring traditional salespeople as they expand into new markets.

Entrepreneurs have a keen appreciation for the importance of the salesperson. They look for salespeople with a talent for communicating with engineers and product designers as well as engaging the customer. Such salespeople also exhibit entrepreneurial traits exemplified by a willingness to take risks and rapidly create solutions to meet the needs of the consumer. In the early stage of taking an innovation to market their entrepreneurial talents are a key to success.

On January 20 President Obama eloquently described the economic crisis we face. Then he issued a stirring call to “pick ourselves up, dust ourselves off, and begin again the work of remaking America.” For businesses that means resuming the practices that made our economy flourish – innovation, efficient execution and, perhaps most important, customer service.
A few months back a former waitress told how she prospered in the brutally competitive restaurant environment. She went the extra mile, greeting customers warmly, making sure they were served efficiently and responding to any issues they may have. Initially, this meant they left her larger tips. Since they had a good experience they would return to the restaurant. And when they realized the service she provided was better they asked to be seated at her tables. Over time she developed a loyal following of customers. There were times that other servers had no customers but she was busy. Today she is an entrepreneur. Using the same responsive approach to customer service Suzanne Clarridge has grown My Brands to be a success.
Kitty Van Bortel, President of two car dealerships, says what keeps her awake at night is the fear that one of her employees has treated a customer rudely. As a result, she describes her role as that of a customer advocate. For example, once a customer brought a new car in for a first service. The mechanic changed the oil but did not tighten the cap adequately. The oil drained out, the engine seized and the car broke down on the Thruway and was towed back to the dealership. Her mechanics realized it was their fault and quickly started to work on the car. But, Van Bortel knew the customer was thinking, “Whatever the mechanics do, this refurbished car will never be as good as new.” So she walked up to him and told him she was going to give him a new car with the exact same specifications. The look of relief on his face told her she had earned his trust.
Little wonder, then, that Americans are known around the world for excellent customer service. Visit service establishments around the globe and you come to appreciate the service you receive here. A telephone customer in Switzerland may want a detailed breakdown of his telephone bill to check if he was accurately charged. The Swiss phone company’s cold response is “We don’t make mistakes.” Go to a fancy restaurant in India and you will be surrounded by waiters. But ask for a cold drink and it can take several minutes to get it. Or, travel by train in Spain. Just make sure you arrive early or the train could have left.
Peter Parts Electronics buys products in Asia and distributes them to customers all across the United States. They help companies build a global supply chain for sourcing components. When Peter Parts meets potential customers he promises Japanese quality, Chinese prices and American customer service. Why? Because excellent customer service will bring customers back and that will help grow the economy. The task for businesses is to show they can meet customer expectations consistently and respond quickly and with empathy when those needs are not met.
Arguably, among the major drivers today of the Rochester economy are educational institutions. The customers for education are the community. People ranging from high school graduates to practicing professionals to seasoned businessmen come to college to deepen their knowledge or embark on new careers. The task for education is to provide the service that will enable them to pick themselves up and dust themselves off. The way forward is to provide American customer service.

It’s a time of change. And, over the next few years, that change will bring exciting opportunities for innovative minds.
Recent weeks have seen tremendously volatile financial markets, severe credit constraints and the rise and collapse of commodity prices. Lost in this drama is the reversal of a long-term trend. From 1997 to 2007 the Consumer Price Index (CPI) increased at an annual rate of 2.5%. But this year the CPI has been increasing more rapidly. In September the year-over-year increase almost doubled to reach 5 percent.
What’s changed? In 1997, the cost of labor in an emerging economy was five to ten times lower than in the US. But those overseas costs are on the rise. Skilled labor in China and India are demanding and getting higher wages. Also, new labor laws in those countries have added to the costs of off-shoring and outsourcing. What can be done if cheap labor can no longer be relied on to keep costs low? Businesses are coming up with intriguing ways to reduce the cost of materials used.
Reuse of discarded materials – A man in Pennsylvania has discovered a process to microwave tires and reduce them to diesel fuel. At the Center for Integrated Manufacturing Studies (CIMS) engineers are working with a local company to design a process to convert used tires into railroad ties.
Durable designs, such as pre-owned luxury cars that are certified to work as well as new – A German company, Henkel, designed refillable glue sticks, reducing their use of plastics in this product by 70 percent. Xerox uses solid ink instead of cartridges, cutting the waste from their ink cartridges by almost 95 percent.
Reusable platforms - IKEA provides sofas whose covers can be replaced when the old covers are worn out or the pattern is dated. One Rochester entrepreneur is working on a “gray” car. Every couple of years the car will be refurbished, improved with new features, and re-sold as “new”.
Dematerialized products, replacing physical products with information products – Amazon and Sony have designed e-books. A student would replace a backpack full of books with one e-book. An entrepreneur in British Columbia is designing a bracelet that contains a thumb-drive. The student needs to carry only the bracelet and a laptop. Zipcar makes car-sharing convenient. It uses the web to provide information about the availability and location of rental cars. An electronic card provides access to the car. More information reduces the need for everyone to own a car.
Early alert systems - New systems alert owners that a failure may occur and maintenance is required. CIMS designed a centralized system to help the Regional Transit Service (RTS) track key systems on their buses and order defective ones back for repairs before there is a breakdown. The centralized system can also collect data from all buses to test for efficiencies that result from the use of a new type of oil.
Use of recycled materials - IKEA is known for its use of recycled materials: recycled paper to construct sofa frames, recycled aluminum for bookcases and recycled plastic for chairs. CIMS is designing new “demanufacturing” processes in conjunction with Delphi to recover precious metals like platinum from fuel cells.
The old approach to innovation was to design new products, services and processes to meet the needs of the customer. The new approach being adopted by socially responsible corporations is to employ creative minds that also consider the impact on our ecology. It is a change that will make for a healthier, happier world.

You wake up one day and you have this wonderful idea. Maybe it’s a new windshield wiper or a new restaurant concept or a new web-based game. You just know there will be a market for it. A few years back, your enthusiasm and passion could have infected others who would give or loan you the money to get started. Today, things happen differently.
Beginning entrepreneurs source initial funding from the 3F’s – Founder, Family and Friends. Founder funding usually comes from savings, credit cards and often mortgages. But currently credit and mortgages are increasingly difficult to get. Credit card companies are issuing new cards only if you have a good credit score. Even then, if you get a new credit card, you have to watch out for the hidden fees such as late payment penalties and other fees. Mortgages have also become more difficult to acquire. Banks are unsure about interest rates they may have to pay. So, even if you have good credit, a bank is more inclined to be cautious loaning money. If they do offer a mortgage it is more likely to be a variable rate mortgage, which can present problems to a fledgling business if the rates go up.
Family and friends are also cautious. Today, many are looking for a safe place for their money and a new venture tends to be speculative. If family members are inclined to help they are likely to give you money only if they have some to spare. But, with an uncertain economic future, they too would be inclined to hold on to it for a rainy day. Friends, on the other hand, are likely to look for tangible evidence of your confidence in the new venture. That is, they will look for how much skin you have in the game. If you had few assets to start with and your personal investment is low don’t count on much from this source.
Times are also tough even if you own a small business that started a while back and has proved to be profitable. Banks will not provide you much credit in this case, either. A more promising source is customers and suppliers with whom you have developed strong relationships. Customers can pay off their accounts receivables quicker and suppliers can extend their payable deadlines, giving your finances a short-term boost. If they won’t help, you can factor your accounts receivables and incur late payment fees with some of your suppliers.
You could look for credit from a local banks. The major cause of the financial crisis has been the fall in real estate values. So, on the face of it, Rochester should not suffer much. After all, the real estate values in the area were not inflated by speculators. But banks in Rochester depend on rates set by banks outside Rochester. Citizens Bank is owned by RBS headquartered in Scotland, Key Bank is part of Key Bank Corp headquartered in Cleveland. Community banks get money to loan from other sources such as the Federal Home Loan Banks. Their interest rates are set in the context of a global financial marketplace. Times are tough and these interest rates are higher than a year ago.
But Rochester is in good shape to benefit when credit loosens up and the economy starts to turn. Funds will start to flow towards enterprises that are likely to prosper in a knowledge economy. And Rochester is ranked among the top ten in the world on a knowledge competiveness index compiled by Robert Huggins. In part that is because of the educational institutions that have a focus on technology and health, manufacturing enterprises that have a focus on high skill areas such as optics and information technology, and an entrepreneurial culture. Rochester should be one of the early beneficiaries of the turnaround.

Don’t worry! This isn’t yet another article about finding jobs. It’s about helping the Rochester economy prosper through networks of invention, resources and markets.
Rochester has always had a resilient economy. In its early years the “Flour” City transported grain that fed the urban populations of New York and the East Coast. Later, Rochester prospered with Kodak, Xerox and Bausch & Lomb, and the region developed as a center for quality printing, document processing and optics. Today these companies have been joined by others such as Paychex, Wegmans, Paetec, Sutherland Global and Constellation Brands.
As the service economy matures, these businesses will continue to flourish by tapping into Rochester’s extensive skills base. Rochester consistently ranks among the top 10 of 125 urban areas in the world knowledge competitiveness index. Why? Contributing factors include the creativity of the population (2.33 patents per thousand workers compared to a US average of 0.4) and the education level of the workforce, raised by 19 colleges in Greater Rochester and 58 within an hour’s drive. Arguably this is one of the densest concentrations of educational institutions in the world.
But continued prosperity will depend on institutions in Rochester building access to networks that will encourage the growth of new businesses. Most local entrepreneurs recognize the need for tapping into finance networks. Thus, early-stage companies look for angel investors. As these companies grow they seek out venture capital and equity financing. Building connections to these networks, here and beyond the Western New York region, is clearly important. Less recognized, however, is the need for three other networks: invention, resources and markets.
The invention network – For years Kodak found inventors at the leading edge of technology right here in Rochester. But over time the needed skills became more geographically dispersed. Kodak followed, building a global invention network that started in Japan. Similarly, years back Xerox extended its invention network from Webster to Silicon Valley. Today, its R&D facilities span the globe. Newer ventures tap into the networks established by educational institutions. Engineers trained by faculty at Rochester Institute of Technology (RIT) provided the imaging technology at the heart of Pictometry. Those faculty are a part of a globe-spanning imaging technology fraternity,
The resource network – Constellation Brands knew its success depends on building a global network of recognized brands, so they expanded beyond New York to build a global network of producers. JBL Optical for years leveraged the technical production skills of the Rochester area. But over time, JBL recognized the need for networking with Korea and India to supplement its production capabilities. In addition to skills, the resource network includes materials and components. For example, Peter Parts Electronics built a successful venture by cultivating an extensive network of suppliers in the Far East.
The marketing network – A key element of building a marketing network is understanding the customer. Wegmans develops a deep understanding of its customers by analyzing their buying habits. This works for small companies as well. Gorbel has successfully survived the downturns in its business by listening to its sales-force for insights about its customers. As its competition reduced their sales force and developed a web presence, Gorbel understood the customer needed a high-touch approach to customizing. It maintained its sales force and today is one of the dominant players in its niche.
George Eastman’s Kodak helped businesses grow during the early part of the twentieth century. A hundred years later a new generation of institutions need to do the same. The help Kodak provided was easy to identify - financing and a ready market. Today, growing companies need more sophisticated help - access to networks.

It’s no secret that the package printing industry has become increasingly competitive over the last two decades. Yet, in the last decade, one Rochester company grew their sales year over year by double digits. Today, they have $ 100 million in sales and 400 employees. For this feat, James E. Hammer, President and CEO of Hammer Packaging, was awarded the Vanden Brul Award by RIT’s E. Philip Saunders School of Business. Each year this award goes to a local business entrepreneur who made a significant impact on the Rochester business economy.

Since taking over as president and CEO Jim Hammer has fostered a culture centered on the inevitability of change. “Expect it, accept it, thrive on it,” says Hammer. New Hammer associates hear this message when hired and continually throughout their careers. “Our markets have gotten progressively more competitive, and the driving challenge is to maintain one’s competitive advantage. To us that equates to innovation,” says Hammer.

But, innovation does not simply happen. At Hammer Packaging, an Innovation Department looks to leverage emerging technologies. This commitment to leading-edge technology has been recognized by the industry: The company is ranked among the top five printers in North America when it comes to reinvesting back into the business. A recent example is a new press technology that uses electron beam inks and coatings which have unique properties, as well as provides for a more eco-friendly alternative to traditional printing methods. This investment was quickly followed with a 10-color press, expanding Hammer packaging’s capabilities in the pressure sensitive markets.

Innovation is also driven by the company’s quality system. It aims to respond to customer concerns. The company had five facilities and needed to improve communications to provide customers with better quality service. So, early this year Hammer Packaging installed a new ERP system. “We feel it is critical to provide our employees with the tools to get their jobs done as effectively and efficiently as possible,” said Hammer.

Innovation has also influenced policies for its people. Last year Hammer packaging was honored with the Rochester Business Ethics Award. In addition, the company continues to receive a Best Workplace in America award from the printing industry. “Both of these honors are a tribute to the associates at Hammer Packaging. We focus a lot of time on hiring the right people,” says Hammer.

And it is those people, along with shared ideas and resources that have allowed Hammer Packaging to stay ahead of the curve on print technology and innovation.

In 1998, Hammer faced a difficult choice: stay in Rochester or move the majority of the operations to North Carolina. A discussion with RIT’s then president, Al Simone, helped influence the final decision. Hammer acquired space from RIT at their Business Technology Park. Close relationships with RIT and their School of Print Media contributed to innovation at Hammer Packaging. And, in 2006 they invested almost $ 6 million to expand their operations in Henrietta.

In 2007, competing against 5200 entries from firms around the world, Hammer Packaging received four Premier Print Awards. With a view to reducing its carbon footprint, Hammer Packaging consolidated five facilities in to three increasing their presence in Tech Park almost by a factor of four. Hammer Packaging is a great local success story and one of the most widely respected companies in the region and in their industry. Innovation has driven the company to find creative ways to stay ahead of the competition, to develop its people and – happily – to stay in Rochester.

Unlike most disciplines, business education continually strives for relevance. In a narrow sense it deals with elements of everyday commerce. But, as Rakesh Khurana argues in his recent book “From Higher Aims to Hired Hands” (Princeton University Press, 2007) the purpose of a business education has evolved to the development of professionals. He argues that business schools need to rededicate themselves to the idea of managers as professionals who are “the primary link between the narrower concerns of business and the broader ones of society.”

Khurana is not the first to complain about the direction of management education. And his views and those of others strike a chord with most educators in business schools. In recent years, Stanford, MIT, and Harvard–arguably the best business schools–have all made significant changes to their curricula. Further, to generate a more general response from a broader array of schools to criticisms of lack of relevance, the AACSB International Board of Directors created a Management Education Task Force. Their white paper “Management Education at Risk,” published in 2002, emphasized that broad content and fundamental analytical skills remain important. But, they suggested, in order to stay relevant, business schools must take several steps, notably: continually experiment with changing technologies; employ action-learning and technology-enhanced pedagogy; achieve diversity in composition of students and faculty; develop interpersonal, leadership and communication skills; institute outward-facing curricula and experiential education with significant input from faculty members familiar with business, focus less on the researcher as teacher staffing model; and blur boundaries between departments

At the Saunders College we have embraced these suggestions. Here are some examples:
• Experimenting with changing technologies – professors are teaching classes using Second Life and social networking tools such as Ning.
• Action-learning and technology-enhanced pedagogy – more than a third of professors use interactive simulations. A simulation created at the Saunders College is being used by the Indian Institute of Technology – Khozikode in a student competition.
• Diversity in composition of students and faculty – more than thirty percent of students are from other countries and twenty-five percent of faculty come from outside the US. Overall, seventy percent have international experience.
• Interpersonal, leadership and communication skills – several classes involve teams working on projects. Results must be presented to clients.
• Outward-facing curricula and experiential education – projects deal with problems critical to organizations around Rochester. One example: Excellus, an insurance company in the Upstate New York region, saw an opportunity for introducing a limited-benefit health insurance plan. A student team collected data and suggested attractive product features, price points and so on. Excellus adopted many of their recommendations and had a highly successful product launch.
• Faculty members familiar with business – Twenty-five percent of the full-time faculty have earned their stripes in the business world as entrepreneurs and managers. Overall eighty-five percent have business experience they bring to the classroom.
• Blurring boundaries across departments – the business school eliminated the department structure. Recently faculty with backgrounds in MIS, Entrepreneurship and Marketing joined to define a new area – digital entrepreneurship. Today, two cross-disciplinary task forces are deep into revising the core curriculum.

Still, curricular change relies on the enthusiasm of a student-centered faculty. On one recent afternoon a visitor walking through the building would have seen an MIS and Management professor in deep conversation with a student team, a Finance faculty member holding an impromptu tutorial for three students, an Accounting professor visible through the open door to his office explaining a fine point to a student, and so on. Ultimately, it is this enthusiasm for student learning that drives the faculty to design and deliver a challenging and relevant curriculum.

The Saunders College of Business is changing dramatically in response to changes in students’ needs and aspirations as well as in response to changes in the global business environment. Our goal: to deliver the best educational programs for developing business innovators.

Some of the changes here are readily apparent. For example, just take a look at our physical facilities. The Lowenthal building has a facelift. Outside, a new patio welcomes students and visitors. Inside, concrete walls have taken on a warmer feel, with new oak panels and railings. Students and faculty now interact in glass-walled areas that bring the outside in – minus the wind chill! The new atmosphere helps to convey the attitude of the Saunders College of Business faculty and staff – accessible, warm, and inviting. Perhaps this transformation has contributed to a remarkable 50% drop in the Freshman attrition rate!!

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Do CEO’s make too much? Recently many observers have complained about “obscene” compensation levels for American CEOs. Forbes (May 3, 2007) noted that in 2006 the chief executive officers of America’s 500 biggest companies “got a collective pay raise of 38%”. Examples listed by Forbes included Steve Jobs of Apple who had $647 million in restricted stock; to the fifth on the list – Terry Semel, of Yahoo with $174 million.

In 1965 the average CEO earned 20 times as much as the average worker. By 2005, according to the Economic Policy Institute, the ratio was 262!!

What is happening here? The Business Roundtable argues that CEO pay is not exorbitant. Their analysis of the data shows that the average increase in CEO pay over a ten-year period is roughly the same as the average growth in corporate earnings. That begs the question: why didn’t workers’ wages increase at the same rate? Some observers place the blame on greedy CEOs who presumably set their own pay, aided and abetted by directors and compensation consultants who stand to benefit from a cozy relationship.

But people do not change dramatically over the years. I don’t believe that today’s CEOs are any more or less greedy than those of past years. They might be a bit more cautious, though; because of the recent high profile disasters at such companies as Enron, Tyco, and Worldcom, corporations are watched more closely nowadays, and corporate governance is more transparent than it was a decade ago.

I believe that a more likely explanation can be found in looking at the combined impacts of technology and globalization.

Over the last decade or so, companies’ investments in information technology for personal productivity and enterprise integration have significantly reduced the ranks of middle management (see for example Pinsennault and Kramer, Organizational Science 2002). It is from the ranks of middle managers that we draw the next CEOs. Yet, while these reductions mean that the pool of candidates eligible for senior management is shrinking, the number of corporations has been steadily increasing (approx. 10% over five years).

At the same time, globalization has resulted in extended supply chains that require new managerial skills. The traditional global supply chain involved building a product in one country, then moving it for sale to customers in another country. As the tasks involved become more finely divided, supply chains have become more extended, and managing these requires different skills. US corporations need to provide middle managers the time and opportunity to gain those skills, but the managers who survived the downsizings and corporate reorganizations are stretched pretty thin.

Growing demand for a dwindling pool of capable and experienced managers force corporations to pay exorbitantly high wages for the managers that may be good. And the evidence shows that many many managers can not make the jump to CEO and perform at expected levels.. Last year, the CEO turnover rates reached a peak of 16.2% in the US, according to a Booz, Allen and Hamilton study. Umesh Ramakrishnan, from head-hunters Christian & Timbers noted: “The current trend shows clearly that boards are laser-focused on performance, quality and results.” And in the Nov. 11, 2007 Sunday NY Times Nelson Schwartz notes, “Other experts insist the problem [is]… the skill of the individual chief executive and his or her top team.”

So what should US corporations do? They need to develop careful succession plans – a task that was less critical back when the pool of experienced middle managers was large. Today, that is no longer so. It is a case of supply and demand. Today’s CEO succession plans need to clearly specify skills gaps, particularly in relation to technology and globalization. Where gaps are identified, they need to be closed by ensuring that they work with business schools to develop executive training programs for middle managers and through Executive MBA programs such as offered by the Saunders College of Business.

Innovation

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Innovation: Making a Business of Inventions

Smart managers understand that there’s a big difference between clever invention and successful innovation. My recent reading list included a few books and articles that shed light on the important distinction between invention and innovation. Below I review the history of Xerox, a native Rochester company, to underscore the important role good business sense plays in developing successful innovations.

A recent book Charles Ellis (2006) described how Joe Wilson created and grew Xerox. It is a classic tale. Chester Carlson invented the concept of xerography in 1937 and received his first patent three years later, but it was Wilson’s managerial expertise that transformed that invention into the flagship product of one of the most successful companies of the Seventies. After failing to generate any interest among companies to develop a xerography product, in 1942 Carlson teamed up with Battelle, and together they tried to sell the new device to dozens of companies, with no success. Finally, in 1946 Joe Wilson became aware of the new technology, and he recognized its potential. Through the fifties Wilson organized the company that was to become Xerox. He learned about xerography and gained the respect of technologists. He arranged for financing, entered into alliances with other companies, negotiated contracts, worked out labor agreements, built factories. He sold the product to military and commercial enterprises. The company grew steadily but at a modest pace. Joe Wilson encouraged members of his fledgling organization to contribute their ideas and expertise. A significant breakthrough occurred when John Glavin, the VP of Sales, devised a new five cents-per-copy pricing scheme. Sales took off and the rest, as they say, is history.
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