Sustainability – The Secret Sauce for Innovation?

Ram Nidumolu and C.K. Prahalad wrote a fascinating piece in a recent issue of the Harvard Business Review titled “Why Sustainability is Now the Key Driver of Innovation.” They argue that, given the current regulatory and consumer mindset, sustainability is the logical and critical component for future innovation.

You know how martial artists always talk about redirecting the opponent’s energy against him to gain an advantage? (OK, maybe I’ve watched one too many Bruce Lee movies but trust me, they do.) I was reminded of that dynamic when the authors we sketching the current pitched battle between governments, companies and consumer advocates. It seems the most visionary companies could be viewing the increasing calls for more sustainable products and operations as a golden opportunity to innovate for greater profits, lower costs, and the creation of a competitive advantage.

Nidumolu and Prahalad call sustainability “innovation’s new frontier” and lay out five stages for companies who want to move forward:

• Stage 1: Viewing Compliance as Opportunity – it’s smarter to comply with the most stringent rules up front. Since you’ll be doing the same things everywhere you can create economies of scale and gain a first-mover advantage in the market. Energy companies see increasing government regulation and are creating a smart grid to help respond.

• Stage 2: Making Value Chains Sustainable- Once companies have their own houses in order they should turn to their supply chains. These vendors typically use 80% of the energy, water and other resources for a given product and it makes sense to drive the sustainability message through the entire team. In doing so, most corporations end up reducing costs (Wal-Mart?) and creating new businesses (Waste Management?) as well.

• Stage 3: Designing Sustainable Products and Services- businesses can score over rivals by being the
first to redesign existing products or develop new ones. Procter & Gamble has developed a highly profitable new line of green cleaning products endorsed by the Sierra Club.

• Stage 4: Developing New Business Models – Designing new products and services will lead to developing a new business model. While I’d have thought the model had to be in place before the products and services, the authors note the reverse is true. I guess the developer who offers recycling in an existing building today will be building greener buildings tomorrow. In the process they may be targeting new customers and rethinking the way they work with local planners.

• Stage 5: Creating Next-Practice Platforms- The authors say “To develop innovations that lead to next practices, executives must question the implicit assumptions behind current practices.” I’ve often wondered why we still rely most heavily on landlords to sign long leases when companies’ needs for space change from year to year. We talk about flexibility now in terms like expansion or contraction clauses, but what if space were offered on demand? Regus does it for individuals and small businesses, but could this model be adapted for corporate use? What if traveling associates could drop in to flexible space in any city they way they do in airline clubs in airports?

They offer a few simple rules for putting these ideas into practice. These rules strike me as applicable to any kind of business planning, but think about them in the context of innovation:

• Don’t start from the present. - Most people commit the myopic error of defining the future in terms of the present. These guys are telling us to do the reverse.

• Ensure that learning precedes investments. – The smart companies start small, learn fast, and scale rapidly. Stay wedded to the goal while constantly adjusting tactics – You have to be able to hold to your long term vision while adapting to immediate changes in the market.

• Build collaborative capacity – The Durst Organization, Cook+Fox, and Bank of America collaborated closely with a myriad of suppliers to build (what will become) the country’s first platinum high rise. They redefined they way partners work together to create a dramatic breakthrough in Manhattan

It’s a great article. To read it and learn more about the authors follow this link…


http://hbr.org/2009/09/why-sustainability-is-now-the-key-driver-of-innovation/ar/1

Competing on (Real Estate) Analytics: Some Ideas for Anti-Geeks

Have you read Moneyball by Michael Lewis? It’s one of my favorite books because it tells an entertaining story about how an underdog, underfunded team like Oakland turned the baseball game around by using analytics to challenge conventional wisdom. They hired a fancy Harvard economist to figure out what REALLY mattered when it came to winning games. Based on rigorous statistical analysis they were able to hire unlikely players for less money who actually won more games. Their approach has since been copied by most major teams with great success, most notably Boston (who has the smarts AND the money to hire conventional stars, too.)

Why don’t we do a better job of analyzing our data in real estate? The dealmakers do a great job of understanding market trends but you’d be hard pressed to find many people who are doing deep, rigorous statistical analysis. That’s unfortunate but it also opens up a real opportunity for the early companies who will figure it out. They’ll have the competitive advantage over the dinosaurs who are still struggling to explain budget variances.

Budget variance analysis might tell you WHAT happened but you have to go deeper to find out WHY. You have to go even deeper to figure out what’s GOING to happen in the future. Here’s a simple graphic from the book Competing on Analytics, a terrific book by Thomas Davenport.


I’d venture a guess and say most of us are pretty comfortable in the bottom couple of categories and we all get less comfortable as we move towards the top. If you stop and think about it, though, there are some really compelling questions that can only be answered in those top four categories:

• How can we optimize our portfolio of buildings to drive down the total life cycle cost of real estate?
• How can we do that portfolio optimization but factor in changing labor market dynamics to understand the total cost for people and place?
• How can we understand the potential sales revenue in the market to understand the total VALUE of an optimized portfolio (lower costs, higher revenue at the optimal investment level)?
• How can we increase the efficiency of work order dispatch to factor in varying skill sets, pay rates, self-perform vs. outsource decisions, etc?
• How do we do a better job forecasting headcount?
• How can we model energy consumption to reduce our costs and carbon footprint?
There are lots of smart people and smart companies out there who can help us all answer those types of questions but first we need to be asking them. The companies that ask and answer those questions first will have a competitive advantage over the ones who don’t.

Made to Stick: Why Some Ideas Survive and Others Die

I love, love, love this book! The authors, Chip and Dan Heath, are brothers who explored the idea of “stickiness” put forth by Malcolm Gladwell in The Tipping Point They’ve co-written a book which lays out six characteristics necessary to make your presentation, recommendation or idea “stick” in the minds of those you’re targeting. Thos characteristics are:

Success – find the core of any idea
Unexpected – grab the people’s attention by surprising them
Concrete – make sure the idea can be grasped and remembered later
Credibility – give an idea believability
Emotion – help the people see the importance of the idea
Stories – empower people to use an idea through narrative

One of my teammates, Ben, is a master at making things sticky. He has a double major in philosophy and economics from Yale and is responsible for the heavy duty analytics on our broader team. He was trying to explain how the use of recursive partitioning (a method for multivariable analysis using decision trees to classify dichotomous, dependent variable… don’t ask) could help us figure out which buildings and people were performing best and why.

He found a blog where a guy described sorting socks (I guess there truly IS a blog for everything) and turned that into a simple analogy to describe the analytical technique. He then went on to engage the audience in a series of questions to fill in the blanks on a tool he built and – voila! – we had our best performers. Not only did we feel great about understanding our buildings and people, we also felt vaguely superior for understanding recursive partitioning. Sticky.

If you haven’t read the book please follow this link [link] and check it out on Amazon. The Heaths also write for Fast Company and have a blog here. [link]

Total Cost of Ownership: To a Man With a Hammer, Everything Looks Like a Nail

In the real estate industry we tend to think a lot about bricks and mortar but not so much about how that bricks and mortar combines with other costs over the life of the building to create (or reduce) value for our customers and shareholders. We’re focused so much on our hammer that everything looks like a nail.

The IT industry has done a better job of tackling this question, looking not only at first costs but at hidden costs, related costs, and total life cycle costs. The US Green Building Council has also explored total cost as it justifies green investment by citing greater productivity and lower turnover.

When we run the numbers in real estate, though, we have a tendency to look at first costs and operating costs of bricks and mortar and not much else. That limited view can paint the wrong picture, though. Consider this hypothetical:

You need to build a call center and found sites in City A and City B. The real estate costs are a higher in City A but the labor is much cheaper and just as competent as that in City B. Which city do you choose?

For any kind of investment there are hidden costs (maybe higher maintenance?) related costs (maybe greater taxes) and costs we’ll encounter down the road (maybe faster obsolescence.) When we make our decisions we should be looking at the total cost of ownership.

Mind of the Innovator

I’m intrigued by the work of Matthew May, a real thought leader and the author of The Elegant Solution and In Pursuit of Elegance.

http://www.amazon.com/Elegant-Solution-Toyotas-Mastering-Innovation/dp/0743290178/ref=sr_1_1?ie=UTF8&s=books&qid=1265333630&sr=8-1

He has looked at lots of different companies to understand how and why innovation works (or not.) He has found seven critical derailers when it comes to innovation including:

• Talking shortcuts and leaping to solutions. Like in the rest of life, when you try to cut corners your innovative “solutions” usually don’t work
• Having blind spots. We rely on muscle memory, assumptions, biases and such to go down familiar paths to the same old (sub-optimal) destination
• Dismissing solutions that were “not invented here.” If you think you don’t do this sort of thing, how many times have you gone to an elevator bank and re-pushed a lighted button that someone had already pushed before you?
• Not pushing ourselves deeply and broadly to find even better solutions than the first ones we come up with
• Making compromises and then compensating by trying to sell the benefits of our sub-optimal ideas (cutting corners)
• Making things too complicated. This might seem to contradict the point above, but remember Einstein said “Everything should be made as simple as possible and not one bit simpler.”
• Stifling or dismissing the ideas of people who might be “lower” on the corporate ladder, newer to the team or seem to have less experience

Matthew May is a brilliant writer and he’s got a terrific blog here… take a look!
http://www.inpursuitofelegance.com/

The Ultimate Visual Thinker

Jessica Hagy is an insanely talented thinker/artist with the rare ability to capture big ideas in small pictures. It seems too pat to classify her as a mere cartoonist but her drawings can sometimes make you laugh out loud.
She has a terrific blog called indexed and you can find it here. indexed.blogspot.com. Her work has been published in a nifty little book called Indexed which you can buy it here.
http://www.amazon.com/dp/0142005207?tag=neotakucom-20&camp=14573&creative=327641&linkCode=as1&creativeASIN=0142005207&adid=0HYFZD8HY3CJ71NE64NH&
Here are a couple of her ideas to whet your appetite:

Sorry




Fitting In



Yes, There is Always Another Option



Work With What You’ve Got



My own take on her work: